On February 10, 2021, A&A Company purchased a call option for $2,200. The call option gives A&A the right to purchase 1,250 common shares of PC Inc. for $17. On May 17, 2021, A&A settles the call option in cash. On May 17, 2021, the common shares of PC Inc. are trading at $22 each. On May 17, 2021, the fair value of the call option purchased by A&A Company is $6.400. The entry to record the settlement of the option on the books of A&A Company is: O Derivatives - financial assets/liabilities 2.200 Cash 4,050 Gain or loss on derivatives 6.250 O Cash 6,250 Gain or loss on derivatives 4,050 Derivatives - financial assets/liabilities 2,200 O Cash 6.250 Gain or loss on derivatives 6,250
On February 10, 2021, A&A Company purchased a call option for $2,200. The call option gives A&A the right to purchase 1,250 common shares of PC Inc. for $17. On May 17, 2021, A&A settles the call option in cash. On May 17, 2021, the common shares of PC Inc. are trading at $22 each. On May 17, 2021, the fair value of the call option purchased by A&A Company is $6.400. The entry to record the settlement of the option on the books of A&A Company is: O Derivatives - financial assets/liabilities 2.200 Cash 4,050 Gain or loss on derivatives 6.250 O Cash 6,250 Gain or loss on derivatives 4,050 Derivatives - financial assets/liabilities 2,200 O Cash 6.250 Gain or loss on derivatives 6,250
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On February 10, 2021, A&A Company purchased a call option for $2,200.
The call option gives A&A the right to purchase 1,250 common shares of PC Inc. for
$17.
On May 17, 2021, A&A settles the call option in cash.
On May 17, 2021, the common shares of PC Inc. are trading at $22 each.
On May 17, 2021, the fair value of the call option purchased by A&A Company is
$6.400.
The entry to record the settlement of the option on the books of A&A Company is:
Derivatives - financial assets/liabilities
2,200
Cash
4,050
Gain or loss on derivatives
6.250
Cash
6,250
Gain or loss on derivatives
4,050
Derivatives financial assets/liabilities
2,200
O Cash
6,250
Gain or loss on derivatives
6,250
O Cash
6,250
Derivatives - financial assets/liabilities
6,250
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