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On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 • Strike price: $240 per share . Expiration date: April 30, 2025 • Total cost of the option contract: $110 • Seller of the option contract: First Investment Bank On January 1, 2025, XYZ stock was trading at $240 per share. The following additional information is known: . On March 31, 2025, the price of XYZ stock was $260 per share. A market appraisal indicated that the time value of the option contract was $90. . On April 5, 2025, the price of XYZ stock was $255 per share. A market appraisal indicated that the time value of the option contract was $80. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2025 hrough March 2025. (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 2025 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2025. Of no entry is required for a transaction/event, select "No journal entry required in the first account field.)

On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 • Strike price: $240 per share . Expiration date: April 30, 2025 • Total cost of the option contract: $110 • Seller of the option contract: First Investment Bank On January 1, 2025, XYZ stock was trading at $240 per share. The following additional information is known: . On March 31, 2025, the price of XYZ stock was $260 per share. A market appraisal indicated that the time value of the option contract was $90. . On April 5, 2025, the price of XYZ stock was $255 per share. A market appraisal indicated that the time value of the option contract was $80. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2025 hrough March 2025. (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 2025 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2025. Of no entry is required for a transaction/event, select "No journal entry required in the first account field.)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 . Strike price: $240 per share . Expiration date: April 30, 2025 • Total cost of the option contract: $110 • Seller of the option contract: First Investment Bank On January 1, 2025, XYZ stock was trading at $240 per share. The following additional information is known: • On March 31, 2025, the price of XYZ stock was $260 per share. A market appraisal indicated that the time value of the option contract was $90. On April 5, 2025, the price of XYZ stock was $255 per share. A market appraisal indicated that the time value of the option contract was $80. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2025 hrough March 2025. (If no entry is required for a transaction/event, select "No journal entry 'equired" in the first account field.) 2. Indicate any amounts that Mills Corp. would have included in its March 2025 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2025. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ? Call option Cash Call option Gain on investment (unrealized. OCI) General Journal Loss on settlement of call option Call option Req 1 Call option Req 2 Req 3 Income Statement (partial): Net gain (unrealized, NI) ✔ ✔ x X ♥ Debit 110 90 x 2,200 Credit Indicate any amounts that Mills Corp. would have included in option contract. Balance Sheet (current assets): 110 < Req 1 90 x 2,200 x
Transcribed Image Text:On January 1, 2025, Mills Corp. purchased a call option on shares of XYZ stock. Terms of the contract were as follows: • Number of shares: 100 . Strike price: $240 per share . Expiration date: April 30, 2025 • Total cost of the option contract: $110 • Seller of the option contract: First Investment Bank On January 1, 2025, XYZ stock was trading at $240 per share. The following additional information is known: • On March 31, 2025, the price of XYZ stock was $260 per share. A market appraisal indicated that the time value of the option contract was $90. On April 5, 2025, the price of XYZ stock was $255 per share. A market appraisal indicated that the time value of the option contract was $80. On this date, Mills settled the option contract. Required: 1. Prepare the appropriate journal entry or entries related to transactions occurring in January 2025 hrough March 2025. (If no entry is required for a transaction/event, select "No journal entry 'equired" in the first account field.) 2. Indicate any amounts that Mills Corp. would have included in its March 2025 quarterly financial statements related to the option contract. 3. Prepare the appropriate journal entry or entries related to settlement of the option in April 2025. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) ? Call option Cash Call option Gain on investment (unrealized. OCI) General Journal Loss on settlement of call option Call option Req 1 Call option Req 2 Req 3 Income Statement (partial): Net gain (unrealized, NI) ✔ ✔ x X ♥ Debit 110 90 x 2,200 Credit Indicate any amounts that Mills Corp. would have included in option contract. Balance Sheet (current assets): 110 < Req 1 90 x 2,200 x
Event 1 2 3 General Journal Loss on investment (unrealized, NI) Call option Loss on investment (unrealized, NI) Call option Cash Call option Gain on investment (unrealized, NI) < Req 2 Req 3 X Debit
Transcribed Image Text:Event 1 2 3 General Journal Loss on investment (unrealized, NI) Call option Loss on investment (unrealized, NI) Call option Cash Call option Gain on investment (unrealized, NI) < Req 2 Req 3 X Debit
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