0n June 1, 2017, Stork Industries purchases an option contract for $5,000 on 10,000 gallons of aviation...
Question:
0n June 1, 2017, Stork Industries purchases an option contract for $5,000 on 10,000 gallons of aviation gas to minimize its purchasing cost price exposure. At the time, the market price is $2.50 per gallon and the option price of $2 per gallon will expire 6 months later. Stork can exercise the option at its discretion. When Stork prepares quarter reports on June 30, the option contract is worth $25,000 and Stork is still holding it. On August 1, Stork exercises the option when the gas market price is $5.00 per gallon and purchases 40,000 gallons of gas. On August 15, Stork uses all of the gas on a charter flight.
Instructions
What are Stork’s journal entries with regard to the aviation gas option?
Accounting Principles
ISBN: 978-1119048503
7th Canadian Edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak