Refer to P16-1, but assume that Hing Wa wrote (sold) the call option for a premium of $480 (instead of buying it). Assume that the market price of the shares and the fair value of the option are otherwise the same.
In P16-1
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, 2017 for $480. The call option is for 240 shares (notional value), and the strike price is $80. The option expires on January 31, 2018. The following data are available with respect to the call option:

Instructions
Prepare the journal entries for Hing Wa for the following dates:
(a) July 7, 2017: Sale of the call option on Ewing shares.
(b) September 30, 2017: Hing Wa prepares financial statements.
(c) December 31, 2017: Hing Wa prepares financial statements.
(d) January 4, 2018: Hing Wa settles the call option net on the Ewing shares (that is, without selling the shares).

Transcribed Image Text:

Date Fair Value of OptionMarket Price of Ewing Shares Sept. 30, 2017 Dec. 31, 2017 Jan. 4, 2018 $1,780 $ 965 $1,550 $86 per share $83 per share $85 per shar