The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2020, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2021. The following data are available with respect to the call option. Date   Market Price of Wade Shares   Time Value of Call Option September 30, 2020   $77 per share   $180 December 31, 2020    75 per share    65 January 4, 2021    76 per share    30 Instructions Prepare the journal entries for Miller Co. for the following dates.  a. July 7, 2020—Investment in call option on Wade shares.  b. September 30, 2020—Miller prepares financial statements.  c. December 31, 2020—Miller prepares financial statements.  d. January 4, 2021—Miller settles the call option on the Wade shares.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2020, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2021. The following data are available with respect to the call option.

Date   Market Price of Wade Shares   Time Value of Call Option
September 30, 2020   $77 per share   $180
December 31, 2020    75 per share    65
January 4, 2021    76 per share    30
Instructions

Prepare the journal entries for Miller Co. for the following dates.

 a. July 7, 2020—Investment in call option on Wade shares.

 b. September 30, 2020—Miller prepares financial statements.

 c. December 31, 2020—Miller prepares financial statements.

 d. January 4, 2021—Miller settles the call option on the Wade shares.

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