(Derivative Financial Instrument) Johnstone Co. purchased a put option on Ewing common shares on July 7, 2017, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2018. The following data are available with respect to the put option. Date Market Price of Ewing Shares Time Value of Put Option September 30, 2017 $77 per share $125 December 31, 2017 75 per share 50 January 31, 2018 78 per share 0 InstructionsPrepare the journal entries for Johnstone Co. for the following dates.(a) July 7, 2017—Investment in put option on Ewing shares.(b) September 30, 2017—Johnstone prepares financial statements.(c) December 31, 2017—Johnstone prepares financial statements.(d) January 31, 2018—Put option expires.
(Derivative Financial Instrument) Johnstone Co. purchased a put option on Ewing common shares on July 7, 2017, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2018. The following data are available with respect to the put option. Date Market Price of Ewing Shares Time Value of Put Option September 30, 2017 $77 per share $125 December 31, 2017 75 per share 50 January 31, 2018 78 per share 0 InstructionsPrepare the journal entries for Johnstone Co. for the following dates.(a) July 7, 2017—Investment in put option on Ewing shares.(b) September 30, 2017—Johnstone prepares financial statements.(c) December 31, 2017—Johnstone prepares financial statements.(d) January 31, 2018—Put option expires.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
(Derivative Financial Instrument) Johnstone Co. purchased a put option on Ewing common shares on July 7, 2017, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2018. The following data are available with respect to the put option.
| Date | Market Price of Ewing Shares | Time Value of Put Option |
| September 30, 2017 | $77 per share | $125 |
| December 31, 2017 | 75 per share | 50 |
| January 31, 2018 | 78 per share | 0 |
Instructions
Prepare the
(a) July 7, 2017—Investment in put option on Ewing shares.
(b) September 30, 2017—Johnstone prepares financial statements.
(c) December 31, 2017—Johnstone prepares financial statements.
(d) January 31, 2018—Put option expires.
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