Question
On August 1, 2020, Blossom Ltd. purchased a call option from DDR Investments Corporation. The option gave Blossom the right to buy 20,000 shares in
On August 1, 2020, Blossom Ltd. purchased a call option from DDR Investments Corporation. The option gave Blossom the right to buy 20,000 shares in a third company, MGL Ltd., at a price of $22.50 per share. On the day Blossom purchased the option, MGL shares were trading at $22.50 each. Blossom paid $900 for the options. On August 31, 2020, the MGL shares were trading at $24.00 each, and the options for MGL shares were trading at $30,500. On September 15, Blossom settled the options in cash when the MGL shares were trading at $25.50, and the options were trading at $60,000.
Two part question:
Prepare the journal entries to record the above transactions, also prepare the September 15 journal entry assuming Blossom accepted instead the shares in MGL.
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