Question

Derivatives:

Problem 4: Johnstone Co. purchased a put option on Ewing common shares on July 7, 2017, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2018. The following data are available with respect to the put option. Market Price of Time Value of Date Ewing Shares Put Option September 30, 2017 $77 per share December 31, 2017 75 per share 50 January 31, 2018 78 per share $125 0 REQUIRED: Prepare the journal entries for Johnstone Co. for the following dates. (a) July 7, 2017 - Investment in put option on Ewing shares. (b) September 30, 2017 - Johnstone prepares financial statements. (c) December 31, 2017 - Johnstone prepares financial statements. (d) January 31, 2018 - Put option expires.

Answer 1

solution No Date Account titles and Explanation Debit credit @ quo Jun-7 2017 $ quo put option cash [recording of snuestment in Put option] Sep 30 814 Ss unrealized Holding $115 Gain Conlloss-Income Put option ($200-$125) [recanding of unrealized Holding Grainoy loss Dec-31 2017 $75 Uncalized Holding Ginoor -Income $15 Put option ($125 - 503 [recanding of unrealized Holding Gaincoviless] 0 Jan 31, 2010 LOSS on settlement $50 of put option ut option ( $50 - $0) [recanding of waradized peat loss on settlement of put option]