On August 1, 2020, Cullumber Ltd. purchased a call option from DDR Investments Corporation. The option gave Cullumber the right to buy 16,000 shares in a third company, MGL Ltd., at a price of $22.75 per share. On the day Cullumber purchased the option, MGL shares were trading at $22.75 each. Cullumber paid $700 for the options. On August 31, 2020, the MGL shares were trading at $24.25 each, and the options for MGL shares were trading at $24,400. On September 15, Cullumber settled the options in cash when the MGL shares were trading at $26.00, and the options were trading at $52,000. Prepare the journal entries to record the above transactions
On August 1, 2020, Cullumber Ltd. purchased a call option from DDR Investments Corporation. The option gave Cullumber the right to buy 16,000 shares in a third company, MGL Ltd., at a price of $22.75 per share. On the day Cullumber purchased the option, MGL shares were trading at $22.75 each. Cullumber paid $700 for the options. On August 31, 2020, the MGL shares were trading at $24.25 each, and the options for MGL shares were trading at $24,400. On September 15, Cullumber settled the options in cash when the MGL shares were trading at $26.00, and the options were trading at $52,000. Prepare the journal entries to record the above transactions
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On August 1, 2020, Cullumber Ltd. purchased a call option from DDR Investments Corporation. The option gave Cullumber the right to buy 16,000 shares in a third company, MGL Ltd., at a price of $22.75 per share. On the day Cullumber purchased the option, MGL shares were trading at $22.75 each. Cullumber paid $700 for the options. On August 31, 2020, the MGL shares were trading at $24.25 each, and the options for MGL shares were trading at $24,400. On September 15, Cullumber settled the options in cash when the MGL shares were trading at $26.00, and the options were trading at $52,000.
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