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Question #1 On July 5, 2022, Kent Corp. purchased a call option for $2,400, giving it the right to buy 2,000 shares of Norfolk Corp.

Question #1

On July 5, 2022, Kent Corp. purchased a call option for $2,400, giving it the right to buy 2,000 shares of Norfolk Corp. for $20 per share until September 18. On August 31, 2022, Kents fiscal year end, Norfolk shares were trading at $21.00 each, and the option was trading at $2,700. On September 10, 2022, when the option value was $3,200, Norfolks shares were trading at $21.5, Kent settled the option for cash.

Instructions

Prepare the journal entries to record the above transactions on.

July 5, 2022

August 31, 2022

September 10, 2022

Had Kent settled the option by taking delivery, what would have been the journal entries to record the settlement.

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