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The treasurer of Miller Co. has read on the Internet

The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc.

Question:

The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2020, for $240. The call option is for 200 shares (notional value), and the strike price is $70. (The market price of a share of Wade stock on that date is $70.) The option expires on January 31, 2021. The following data are available with respect to the call option.

Instructions

Prepare the journal entries for Miller Co. for the following dates.

a. July 7, 2020?Investment in call option on Wade shares.

b. September 30, 2020?Miller prepares financial statements.

c. December 31, 2020?Miller prepares financial statements.

d. January 4, 2021?Miller settles the call option on the Wade shares.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.

Transcribed Image Text:

Market Price of Wade Shares $77 per share 75 per share 76 per share Time Value of Call Option $180 65 Date September 30, 2020 December 31, 2020 January 4, 2021

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a July 7 2020 Call Option 240 Cash 240 b September 30 2020 Call Option 1400 Unrealize...View the full answer

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Related Book For answer-question

Intermediate Accounting

ISBN: 978-1119503668

17th edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfiel

Question Posted: Dec 04, 2019 08:39 AM

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