On November 3, 2012, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt

Question:

On November 3, 2012, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-for-sale. Sprinkle Co. is considering making a more significant investment in Pratt Co. at some point in the future but has decided to wait and see how the stock does over the next several quarters. To hedge against potential declines in the value of Pratt stock during this period, Sprinkle also purchased a put option on the Pratt stock. Sprinkle paid an option premium of $600 for the put option, which gives Sprinkle the option to sell 4,000 Pratt shares at a strike price of $50 per share. The option expires on July 31, 2013. The following data are available with respect to the values of the Pratt stock and the put option.

Instructions(a) Prepare the journal entries for Sprinkle Co. for the following dates.(1) November 3, 2012??Investment in Pratt stock and the put option on Pratt shares.(2) December 31, 2012??Sprinkle Co. prepares financial statements.(3) March 31, 2013??Sprinkle prepares financial statements.(4) June 30, 2013??Sprinkle prepares financial statements.(5) July 1, 2013??Sprinkle settles the put option and sells the Pratt shares for $43 per share.(b) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on December 31, 2012.(c) Indicate the amount(s) reported on the balance sheet and income statement related to the Pratt investment and the put option on June 30,2013.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...