(Free-Standing Derivative) Warren Co. purchased a put option on Echo common shares on January 7, 2017, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2017. The following data are available with respect to the put option. Date Market Price of Echo Shares Time Value of Put Option March 31, 2017 $80 per share $200 June 30, 2017 82 per share 90 July 6, 2017 77 per share 25 InstructionsPrepare the journal entries for Warren Co. for the following dates.(a) January 7, 2017—Investment in put option on Echo shares.(b) March 31, 2017—Warren prepares financial statements.(c) June 30, 2017—Warren prepares financial statements.(d) July 6, 2017—Warren settles the put option on the Echo shares.
(Free-Standing Derivative) Warren Co. purchased a put option on Echo common shares on January 7, 2017, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2017. The following data are available with respect to the put option. Date Market Price of Echo Shares Time Value of Put Option March 31, 2017 $80 per share $200 June 30, 2017 82 per share 90 July 6, 2017 77 per share 25 InstructionsPrepare the journal entries for Warren Co. for the following dates.(a) January 7, 2017—Investment in put option on Echo shares.(b) March 31, 2017—Warren prepares financial statements.(c) June 30, 2017—Warren prepares financial statements.(d) July 6, 2017—Warren settles the put option on the Echo shares.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
(Free-Standing Derivative) Warren Co. purchased a put option on Echo common shares on January 7, 2017, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2017. The following data are available with respect to the put option.
| Date | Market Price of Echo Shares | Time Value of Put Option |
| March 31, 2017 | $80 per share | $200 |
| June 30, 2017 | 82 per share | 90 |
| July 6, 2017 | 77 per share | 25 |
Instructions
Prepare the
(a) January 7, 2017—Investment in put option on Echo shares.
(b) March 31, 2017—Warren prepares financial statements.
(c) June 30, 2017—Warren prepares financial statements.
(d) July 6, 2017—Warren settles the put option on the Echo shares.
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