On January 3, Linus Ltd. purchases a call option for $200 from Lucy Corp. to buy 1,000 Rerun Inc. shares at an exercise price of $42 per share. The option expires May 1. At this time the current market price of Rerun shares is also $42.

On March 31 (Linus year end), the market value of the Rerun shares is $53, and the fair value of the option has increased to $14,000.

On April 15, Linus takes delivery of (buys) the Rerun shares as agreed in the option contract. The market value of Reruns shares is now $54.

Instructions

a. Calculate the intrinsic value and the time value of this option at

1. January 3

2 March31

b. Prepare general journal entries for the following dates:

1. January 3

2. March 31

3. April 15