Question
On July 1, 2020, Pelosi Corporation, Inc., [PCI] purchased a put option for $4,000, which gave it the right to sell 1,000 shares of Sunak
On July 1, 2020, Pelosi Corporation, Inc., [PCI] purchased a put option for $4,000, which gave it the right to sell 1,000 shares of Sunak Ships, Inc., [SSI] for $30 each until July 1, 2021. On November 6, 2021 SSI shares are trading at $25 each and SSI settles the option directly (without receiving the SSI shares). The derivative has not been updated since the date of purchase. The journal entry on the books of PCI to record this transaction on November 6, 2021 would be:
a.DR Loss On Derivatives .......... $4,000; CR Investment In Derivatives .......... $4,000.
b.DR Loss On Derivatives .......... $9,000; CR Cash .......... $5,000; CR Investment In Derivatives .......... $4,000.
c.DR Cash .......... $4,000; CR Investment In Derivatives .......... $4,000.
d.DR Cash .......... $5,000; CR Investment In Derivatives .......... $4,000; CR Gain On Derivatives .......... $1,000 .
e. None of the above.
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