Question

On August 15, 2019, Metlock Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $450. The notional value of the call option is 500 shares, and the option price is $50. The option expires on January 31, 2020. The following data are available with respect to the call option. Market Price of Counting Crows Shares $60 per share $58 per share $59 per share Time Value of Call Option $225 Date September 30, 2019 December 31, 2019 January 15, 2020 38 Prepare the journal entries for Metlock for the following dates. (a) (b) (c) (d) Investment in call option on Counting Crows shares on August 15, 2019. September 30, 2019-Metlock prepares financial statements. December 31, 2019-Metlock prepares financial statements. January 15, 2020-Metlock settles the call option on the Counting Crows shares. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Tides and Explanation Debit Credit b) (To record the change in intrinsic value.) (To record the time value change.) HHH HH HH HH HH (To record the change in intrinsic value.) (To record the time value change) To record the time ye ue D (To record settlement of call option.)

Answer 1

Answer: Journal entries Date I particulars The Debit credit Augls call option ale or|$450 To cash $450 psepsd Call option Ale (($60-$50) 500] or $5000 To un realised 'holding $ 5000 loss - gain aurealized holding logo-gain the or 1&225 $225 To Call option f 450-$225] Doec-31 un realized holding Loss-gain Ale or $1000 lunce To cell option (C$60-$58) 500] 1. $144 $ 144 2000 $43 unrealized holding loss-qaine ale or To call option [$225-$81] Santo unsealized holding loss-gain Ale Do To call option (381-38) I cash ale soox or To Gain ou settlemen l sconto To call option $ 43 $ 4500 $2469 $4038 $450 $225 working Noter calculation of Call option: Aug-15 cash sep-30 un realized holding Loss -gain un realized holding loss -gajer Dec-31 anrealized holding Coss-gain un realized holdida con realized holding loss- gain Jan-15 unrealized holding loss - gain Balance 5000 $144 $10oo $43 $ 4038