Question
*Pr. 17-17-132 Derivative financial instrument. Hummel Co. purchased a put option on Olney common shares on July 7, 2012, for $100. The put option is
*Pr. 17-17-132Derivative financial instrument.
Hummel Co. purchased a put option on Olney common shares on July 7, 2012, for $100. The put option is for 200 shares, and the strike price is $30. The option expires on January 31, 2013. The following data are available with respect to the put option:
Date Market Price of Olney Shares Time Value of Put Option
September 30, 2012 $32 per share $55
December 31, 2012 $31 per share 21
January 31, 2013 $33 per share 0
Instructions
Prepare the journal entries for Hummel Co. for the following dates:
(a) July 7, 2012Investment in put option on Olney shares.
(b) September 30, 2012 Hummel prepares financial statements.
(c) December 31, 2012 Hummel prepares financial statements.
(d) January 31, 2013Put option expires.
*Pr. 18-17-133Free-standing derivative.
Welch Co. purchased a put option on Reese common shares on July 7, 2013, for $215. The put option is for 300 shares, and the strike price is $51. The option expires on July 31, 2013. The following data are available with respect to the put option:
Date Market Price of Reese Shares Time Value of Put Option
March 31, 2013 $47 per share $120
June 30, 2013 $50 per share 56
July 6, 2013 $46 per share 16
Instructions
Prepare the journal entries for Welch Co. for the following dates:
(a) January 7, 2013Investment in put option on Reese shares.
(c) March 31, 2013 Welch prepares financial statements.
(d) June 30, 2013 Welch prepares financial statements.
(e) July 6, 2013 Welch settles the call option on the Reese shares.
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