THE PURCHASE$-$SALE OPTION CASE $($PART I$)$

Beyer buys.

"I hear the Union Building is up for sale," said Beth Beyer.

"Yep," answered Carl Cellar. "You can have it today for a price that's a real steal only $$1,000,000.$ Want it$?"$

"Could be$.$ Not today, but maybe sometime soon. Want to sell me a six$-$month option to buy at that figure?"

"Sure would, but with two conditions One, no refund of the option fee if you don't exercise. Two, no applying it to the purchase price if you do$.$ Six$-$month purchase option to purchase the Union for $$1,000,000$; option fee, $$15,000$ in cash."

"Come on$,$ Cellar$-$ $$15,000$ with those conditions? Ten thousand dollars is tops, and I'll write you a check here and now."

$"$OK$,$ Beyer, you've got yourself an option."

a$.$ Cellar must debit Cash, but what should he credit? Explain your answer.

b$.$ Beyer must credit Cash, but what should she debit? Explain your answer.

THE PURCHASE SALE OPTION CASE $($PART II$)$

"Speak now or $"$

Nearly five months after Ben Broecker bought the option from Beth Beyer for $$10,000,$ he received a phone call from Cellar. "Remember your option on the Union Building?" Cellar began. $"$It expires at the close of business tomorrow."

$"$Is that so$?"$ Broecker replied. "You don't think I$\text{'}$d forgotten, do you?"

$"$So what are you gonna do about it$?$ Do we have a deal, or do I put it back on the market?" asked Cellar. "You know the rumor going around that General National Corporation may be coming to town. If they do$,$ commercial space like the Union will be selling like hotcakes!"

"Well, that may or may not be true. We've all heard that rumor$-$and a dozen or so like it before," Broecker responded.

"You betcha, but this time I've got a hunch it'll be the real thing. In fact, I feel so strongly about it that I$\text{'}$m not going to put the Union up for option again once yours expires," Cellar said

Broecker thought for a moment "Let me sleep on it overnight. I'll let you know tomorrow. OK$?"$

"Fine, but I'll need to know no later than $5$ o'clock."

a$.$ If Broecker exercises his option, what should be recognized?

b$.$ If Broecker lets the option lapse, what should be recognized?

c$.$ Assume that Broecker also held a second option on a similar piece of property for which he had paid $$20,000.$ The option price for the second property was $$950,000.$ Although he intended to purchase only one piece of property, he had acquired both options to "buy time" to allow him to research which of the two properties would best suit his needs. If he exercises the second option and lets this one lapse, how should the lapse be recognized?