Question
The treasurer of Wildhorse Corp. has read on the Internet that the stock price of Ewing Inc. is about to take off. In order to
The treasurer of Wildhorse Corp. has read on the Internet that the stock price of Ewing Inc. is about to take off. In order to profit from this potential development, Wildhorse purchased a call option on Ewing common shares on July 7, 2020, for $480. The call option is for 240 shares (notional value), and the strike price is $60. The option expires on January 31, 2021. The following data are available with respect to the call option:
Date | Fair value of Option | Market value of Ewing Shares | |||||
Sept. 30, | 2020 | $1,790 | $66 per share | ||||
Dec. 31, | 2020 | $955 | $63 per share | ||||
Jan. 4, | 2021 | $1,550 | $65 per share |
Prepare the journal entry for Wildhorse for July 7, 2020: Invests in call option on Ewing shares. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entry for Wildhorse for September 30, 2020: Wildhorse prepares financial statements. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entry for Wildhorse for December 31, 2020: Wildhorse prepares financial statements. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Prepare the journal entry for Wildhorse for January 4, 2021: Wildhorse settles the call option net on the Ewing shares (that is, without buying the shares). (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
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