Answered: Prepare the journal entry for Sheridan…

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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The treasurer of Sheridan Corp. has read on the Internet that the stock price of Ewing Inc. is about to take off. In order to profit from this potential development, Sheridan purchased a call option on Ewing common shares on July 7, 2020, for $460. The call option is for 240 shares (notional value), and the strike price is $65. The option expires on January 31, 2021. The following data are available with respect to the call option:

		Fair Value	Market Price
Date		of Option	of Ewing Shares
Sept. 30,	2020	$1,740	$71 per share
Dec. 31,	2020	$975	$68 per share
Jan. 4,	2021	$1,550	$70 per share

Prepare the journal entry for Sheridan for July 7, 2020: Invests in call option on Ewing shares.

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