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On August 1, 2020, Carla Ltd. purchased a call option from DDR Investments Corporation. The option gave Carla the right to buy 16,000 shares in

On August 1, 2020, Carla Ltd. purchased a call option from DDR Investments Corporation. The option gave Carla the right to buy 16,000 shares in a third company, MGL Ltd., at a price of $21.00 per share. On the day Carla purchased the option, MGL shares were trading at $21.00 each. Carla paid $700 for the options. On August 31, 2020, the MGL shares were trading at $22.50 each, and the options for MGL shares were trading at $24,400. On September 15, Carla settled the options in cash when the MGL shares were trading at $23.75, and the options were trading at $44,000.

Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Aug. 1Aug. 31Sept. 15

(To record the acquisition of the option.)

Aug. 1Aug. 31Sept. 15

(To record the change in value of the option.)

Aug. 1Aug. 31Sept. 15

(To record the change in value of the option.)

(To record the settlement of the option.)

Prepare the September 15 journal entry assuming Carla accepted instead the shares in MGL. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Sept. 15

(To record the change in value of the option.)

(To take delivery of the shares using the option.)

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