Refer to P16–1, but assume that Hing Wa wrote (sold) the call option for a premium of $240 (instead of buying it). Assume that the market price of the shares and the value of the options is otherwise the same.
In Problem The treasurer of Hing Wa 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, Hing Wa purchased a call option on Ewing common shares on July 7, 2011, for $240. The call option is for 200 shares (notional value), and the strike price is $70. The option expires on January 31, 2012. The following data are available with respect to the call option:
Prepare the journal entries for Hing Wa for the following dates:
(a) July 7, 2011: Sale of the call option on Ewing shares.
(b) September 30, 2011: Hing Wa prepares financial statements.
(c) December 31, 2011: Hing Wa prepares financial statements.
(d) January 4, 2012: Hing Wa settles the call option net on the Ewing shares (i.e., without selling the shares).