(Put and Call Options) On February 15, 2007, Derek Co. invested idle cash by purchasing a put option on Lee Corp. common shares for $160. The notional value of the put option is 300 shares, and the option price is $50. The option expires on July 31, 2007. The following data are available with respect to the put option.

Instructions Prepare the journal entries for Derek Co. for the following dates.

(a) February 15, 2007—Investment in put option on Lee shares.

(b) March 31, 2007—Derek prepares financial statements.

(c) June 30, 2007—Derek prepares financial statements.

(d) July 6, 2007—Derek settles the put option on the Lee shares.

(e) Repeat the requirements for

(a) through (d), assuming that instead of purchasing a put option, Derek purchased a call option.

Transcribed Image Text:

Date March 31, 2007 June 30, 2007 July 15, 2007 Market Price of Lee Shares Time Value of Put Option $70 30 $40 per share $42 per share $39 per share 20