Question

Exercise 17-27

Date		Market Price of Counting Crows Shares		Time Value of Call Option
September 30, 2016		$106 per share		$396
December 31, 2016		$101 per share		143
January 15, 2017		$103 per share		66

On August 15, 2016, Martinez Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $792. The notional value of the call option is 880 shares, and the option price is $88. The option expires on January 31, 2017. The following data are available with respect to the call option.

Prepare the journal entries for Martinez for the following dates.

(a)		Investment in call option on Counting Crows shares on August 15, 2016.
(b)		September 30, 2016—Martinez prepares financial statements.
(c)		December 31, 2016—Martinez prepares financial statements.
(d)		January 15, 2017—Martinez 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 0 for the amounts.)

Answer 1

Date	Accounts titles and Explanation	Debit ($)	Credit ($)
Aug.15,2016	Call option	$ 792
	Cash		$ 792
Sep.30,2016	Call Option ($106-$88)*880	15,840
	Unrealized Holding Gain or Loss-Income		15,840
	(To record the change in intrinsic value)
	Unrealized Holding Gain or Loss-Income	396
	Call Option ($792-$396)		396
	(To record the time value change)
Dec.31,2016	Unrealized Holding Gain or Loss-Income	4400
	Call Option ($106-$101)*880		4400
	(To record the change in intrinsic value)
	Unrealized Holding Gain or Loss-Income	253
	Call Option ($396-$143)		253
	(To record the time value change)
Jan.15,2017	Unrealized Holding Gain or Loss-Income	77
	Call Option ($143-$66)		77
	(To record the time value change)
	Cash (880*$10)	8,800
	Gain on settlement of call option (880*$1)-$66		814
	Call Option		7986
	(To record settlement of call option)