Reference no: EM132492210

Question 1: On April 1, 2020, Gamma Corp. purchases a call option for $500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $30 each until December 1, 2020. Delta Inc. shares are currently trading for $30. At June 30, 2020, the options are trading at $4,800 and the shares at $32 each. At December 1, 2020, the options expire with no value. The intrinsic value of the option at April 1, 2020 is

A. $1,000.

B. $500.

C. $4,800.

D. $0.

Question 2: On April 1, 2020, Gamma Corp. purchases a call option for $500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $30 each until December 1, 2020. Delta Inc. shares are currently trading for $30. At June 30, 2020, the options are trading at $4,800 and the shares at $32 each. At December 1, 2020, the options expire with no value. At June 30, 2020, Gamma's quarter end, the adjusting entry would be

A. Dr Derivatives-Financial Assets....................4,800 Cr Gain or Loss on Derivatives ....................................................4,800

B. Dr Derivatives-Financial Assets ...................4,300 Cr Other Comprehensive Income............4,300

C. No entry required.

D. Dr Derivatives-Financial Assets....................4,300 Cr Gain or Loss on Derivatives ....................................................4,300

Question 3: On April 1, 2020, Gamma Corp. purchases a call option for $500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $30 each until December 1, 2020. Delta Inc. shares are currently trading for $30. At June 30, 2020, the options are trading at $4,800 and the shares at $32 each. At December 1, 2020, the options expire with no value. At December 1, 2020, Gamma's entry would be

A. Dr Gain or Loss on Derivatives................................................................4,800 Cr Derivatives-Financial Assets..................4,800

B. No entry required.

C. Dr Gain or Loss on Derivatives................................................................4,300 Cr Derivatives-Financial Assets..................4,300

D. Dr Gain or Loss on Derivatives................................................................2,000 Cr Derivatives-Financial Assets..................2,000

Question 4: On October 5, 2020, Kappa Cloth Ltd. enters into a forward contract to purchase 10,000 metres of cotton fabric at $1 per metre, good until February 1, 2021. At December 31, 2020, the forward price for February 2021 delivery of cotton fabric has increased to $1.06 per metre. The adjusting entry at December 31, 2020 would be

A. Dr Derivatives-Financial Assets/Liabilities.............600 Cr Unrealized Gain or Loss (OCI)................................600

B. Dr Gain or Loss on Derivatives..................................................................600 Cr Derivatives-Financial Assets/Liabilities.....600

C. No entry required.

D. Dr Derivatives-Financial Assets/Liabilities.............600 Cr Gain or Loss on Derivatives............................................................600