Question
On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: Number of shares:
On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows:
Number of shares: 100
Strike price: $220 per share
Expiration date: April 30, 2025
Total cost of the option contract: $90
Seller of the option contract: First Investment Bank
On January 1, 2025, XYZ stock was trading at $220 per share. The following additional information is known:
On March 31, 2025, the price of XYZ stock was $240 per share. A market appraisal indicated that the time value of the option contract was $70.
On April 5, 2025, the price of XYZ stock was $235 per share. A market appraisal indicated that the time value of the option contract was $60. On this date, Mills settled the option contract.
Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2025 through March 2025. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Indicate any amounts that Mills Corp. would have included in its March 2025 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2025. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
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Accounting Information Systems
Authors: Patrick R. Wheeler, Ulric J. Gelinas, Richard B. Dull, Dull Gelinas Wheeler
International 10th Edition
017035539X, 9780170355391
