Question
On August 1, 2020, Splish Ltd. purchased a call option from Starco Corporation. The option gave Splish the right to buy 8,500 shares in a
On August 1, 2020, Splish Ltd. purchased a call option from Starco Corporation. The option gave Splish the right to buy 8,500 shares in a third company, Dillon Ltd., at a price of $11 per share. On the day Splish purchased the option, Dillon shares were trading at $11 each. Splishpaid $1,400 for the options. On August 31, 2020, the Dillon shares were trading at $13 each, and the options for Dillon shares were trading at $24,700. On September 15, Splish settled the options in cash when the Dillon shares were trading at $16 and the options were trading at $42,500.
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. 1, 2020Aug. 31, 2020Sept. 15, 2020 | |||
(To record the acquisition of the option.) | |||
Aug. 1, 2020Aug. 31, 2020Sept. 15, 2020 | |||
(To record the change in value of the option.) | |||
Aug. 1, 2020Aug. 31, 2020Sept. 15, 2020 | |||
(To record the change in value of the option.) | |||
(To record the settlement of the option.) |
Prepare the September 15 journal entry settling the option for cash, and assuming Splishaccepted instead the shares in Dillon. (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, 2020 | |||
(To record the change in value of the option.) | |||
(To take delivery of the shares using the option.) |
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