On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: • Number of shares: 100 Strike price: $220 per share Expiration date: May 31, 2022 • Total cost of the option contract: $90 • Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $220 per share. The following additional information is known: • On March 31, 2022, the price of ICM stock was $190 per share. A market appraisal indicated that the time value of the option contract was $70. • On May 10, 2022, the price of ICM stock was $195 per share. A market appraisal indicated that the time value of the option contract was $60. On this date, Rosewood 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 Rosewood 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 May 2022. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: • Number of shares: 100 Strike price: $220 per share Expiration date: May 31, 2022 • Total cost of the option contract: $90 • Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $220 per share. The following additional information is known: • On March 31, 2022, the price of ICM stock was $190 per share. A market appraisal indicated that the time value of the option contract was $70. • On May 10, 2022, the price of ICM stock was $195 per share. A market appraisal indicated that the time value of the option contract was $60. On this date, Rosewood 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 Rosewood 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 May 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, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows:
• Number of shares: 100
• Strike price: $220 per share
• Expiration date: May 31, 2022
Total cost of the option contract: $90
• Seller of the option contract: First Investment Bank
On January 1, 2022, ICM stock was trading at $220 per share.
The following additional information is known:
• On March 31, 2022, the price of ICM stock was $190 per share. A market appraisal indicated that the time value of the option
contract was $70.
• On May 10, 2022, the price of ICM stock was $195 per share. A market appraisal indicated that the time value of the option
contract was $60. On this date, Rosewood 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 Rosewood 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 May 2022. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field.)
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