. . 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 entry to record the purchase of the call option is

a) DerivativesFinancial Assets.............................................................................. 500

Cash................................................................................................................... 500

b) Cash................................................................................................................... 500

DerivativesFinancial Assets.............................................................................. 500

c) FV-NI Investments............................................................................................... 500

Cash................................................................................................................... 500

d) No entry required.

Use the following information for questions 3 - 5.

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.

3. The intrinsic value of the option at April 1, 2020 is

a) $ 0.

b) $ 500.

c) $ 1,000.

d) $ 4,800.

4. The time value of the option at April 1, 2020 is

a) $ 0.

b) $ 500.

c) $ 4,800.

d) $ 30,000.

5. At June 30, 2020, Gammas quarter end, the adjusting entry would be

a) No entry required.

b) DerivativesFinancial Assets........................................................................... 4,300

Gain or Loss on Derivatives................................................................................. 4,300

c) DerivativesFinancial Assets............................................................................ 4,300

Other Comprehensive Income............................................................................. 4,300

d) DerivativesFinancial Assets........................................................................... 4,800

Gain or Loss on Derivatives................................................................................. 4,800