Mr. Berkowitz buys 1,000 equity call options of Normal Electricals for $4 per share for a strike price of $25 on June 12, expiry date being July 16.

Brokerage is 0.25 percent and is settled on T + 2 basis. Pass necessary journal entries for the following events:

1.. Purchase of the options.

2.. Brokerage paid for purchase.

3.. At the end of the reporting period, June 30, the shares are quoted at $28 per share and the options were worth $2 per share. Ascertain the fair value at that time and pass entries.

4.. Assume the options are exercised on the expiry date and for the price of

$27. Pass relevant journal entries on July 16, the expiry date.