Question
E17-21 (Put and Call Options) On February 15, 2007, Derek Co. invested idle cash by purchasing a put option on Lee Corp. common shares for
E17-21 (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.
Date of Lee Shares of Put Option Market Price Time Value March 31, 2007 $40 per share $70 June 30, 2007 $42 per share 30 July 15, 2007 $39 per share 20
Instructions Prepare the journal entries for Derek Co. for the following dates. (a) February 15, 2007Investment in put option on Lee shares. (b) March 31, 2007Derek prepares financial statements. (c) June 30, 2007Derek prepares financial statements. (d) July 6, 2007Derek 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.
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