On January 1, 2022, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 • Strike price: $320 per share • Expiration date: April 30, 2022 • Total cost of the option contract: $90 • Seller of the option contract: First Investment Bank On January 1, 2022, XYZ stock was trading at $320 per share. The following additional information is known: • On March 31, 2022, the price of XYZ stock was $340 per share. A market appraisal indicated that the time value of the option contract was $70. . On April 5, 2022, the price of XYZ stock was $335 per share. A market appraisal indicated that the time value of the option contract was $60. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2022 through March 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Indicate any amounts that Mills Corp. would have included in its March 2022 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On January 1, 2022, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 • Strike price: $320 per share • Expiration date: April 30, 2022 • Total cost of the option contract: $90 • Seller of the option contract: First Investment Bank On January 1, 2022, XYZ stock was trading at $320 per share. The following additional information is known: • On March 31, 2022, the price of XYZ stock was $340 per share. A market appraisal indicated that the time value of the option contract was $70. . On April 5, 2022, the price of XYZ stock was $335 per share. A market appraisal indicated that the time value of the option contract was $60. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2022 through March 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 2. Indicate any amounts that Mills Corp. would have included in its March 2022 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On January 1, 2022, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows:
• Number of shares: 100
• Strike price: $320 per share
• Expiration date: April 30, 2022
• Total cost of the option contract: $90
• Seller of the option contract: First Investment Bank
On January 1, 2022, XYZ stock was trading at $320 per share.
The following additional information is known:
On March 31, 2022, the price of XYZ stock was $340 per share. A market appraisal indicated that the time value of the option
contract was $70.
• On April 5, 2022, the price of XYZ stock was $335 per share. A market appraisal indicated that the time value of the option
contract was $60. On this date, Mills settled the option contract.
Required:
1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2022 through March 2022. (If no entry
is required for a transaction/event, select "No journal entry required" in the first account field.)
2. Indicate any amounts that Mills Corp. would have included in its March 2022 quarterly financial statements related to the option
contract.
3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2022. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
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