On January 3, Stacy Ltd. purchases a call option for $1600 from Lucy Corp. to buy 1,000 Rerun Inc. shares at an exercise price of $47 per share. The option expires May 1. At this time the current market price of Rerun shares is also $47.

On March 31 (Stacys year end), the market value of the Rerun shares is $54, and the fair value of the option has increased to $14,000.

On April 15, Stacy Ltd. takes delivery of (buys) the Rerun shares as agreed in the option contract. The market value of Reruns shares is now $55.

Instructions (show any calculations)

a. Calculate the intrinsic value and the time value of this option at 1. January 3 2 March 31

b. Prepare general journal entries for the following dates: 1. January 3 2. March 31

3. April 15