Cambridge Ltd. paid $250 for the option to buy 1,000 of its common shares for $15 each. The contract stipulates that it may only be settled by exercising the option and buying the shares. Cambridge Ltd. follows IFRS.
Instructions
(a) Provide the journal entry required to account for the purchase of the call option.
(b) Assume that the contract allows both parties a choice to settle the option by either exchanging the shares or settling on a net basis. Would this change your conclusion in part (a)?