"On August 1, 2017, Waterway Ltd. purchased a call option from DDR Investments Corporation. The option gave Waterway the right to buy 16,000 shares in a third company, MGL Ltd., at a price of $23.50 per share. On the day Waterway purchased the option, MGL shares were trading at $23.50 each. Waterway paid $700 for the options. On August 31, 2017, the MGL shares were trading at $25.00 each, and the options for MGL shares were trading at $24,400. On September 15, Waterway settled the options in cash when the MGL shares were trading at $24.50, and the options were trading at $45.500.

Prepare the journal entries to record the above transactions.

   

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Date Account Titles and Explanation (To record the acquisition of the option.) (To record the change in value of the option.) (To record the change in value of the option.) (To record the settlement of the option.) Debit Credit Prepare the September 15 journal entry assuming Waterway accepted instead the shares in MG.. (Credit account titles are automatically indented when the amount is entered. Do no Indent manually. If no entry is required, select No Entry for the account titles and enter 0 for the amounts) Date Account Titles and Explanation Sept. 15 (To record the change in value of the option.) (To take delivery of the shares using the option) Debit Credit Date Account Titles and Explanation (To record the acquisition of the option.) (To record the change in value of the option.) (To record the change in value of the option.) (To record the settlement of the option.) Debit Credit Prepare the September 15 journal entry assuming Waterway accepted instead the shares in MG.. (Credit account titles are automatically indented when the amount is entered. Do no Indent manually. If no entry is required, select No Entry for the account titles and enter 0 for the amounts) Date Account Titles and Explanation Sept. 15 (To record the change in value of the option.) (To take delivery of the shares using the option) Debit Credit

Answer rating: 100% (QA)

Date Account Titles and Explanation Debit Credit Aug 1 DerivativesFinanc... View the full answer