On August 15, 2013, Outkast Co. invested idle cash by purchasing a call option on Counting Crows
Question:
On August 15, 2013, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. The option expires on January 31, 2014. The following data are available with respect to the call option.
Instructions
Prepare the journal entries for Outkast for the following dates.
(a) Investment in call option on Counting Crows shares on August 15, 2013.
(b) September 30, 2013-Outkast prepares financial statements.
(c) December 31, 2013-Outkast prepares financial statements.
(d) January 15, 2014-Outkast settles the call option on the Counting Crows shares?
Market Price of Counting Crows Shares $48 per share $46 per share $47 per share Time Value of Call Option $180 Date September 30, 2013 December 31, 2013 January 15, 2014 65 30
Step by Step Answer:
a August 15 2013 Call Option 360 Cash 360 b September 30 2013 Call ...View the full answer
Intermediate Accounting 2014 FASB Update
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
Related Video
A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.
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