Champion Inc. purchased a call option as a speculative investment on January 1 for $125, allowing...
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Champion Inc. purchased a call option as a speculative investment on January 1 for $125, allowing Champion Inc. to purchase 200 of Rising Star Co. common shares at $100 per share through January 1 of the following year. Champion Inc. prepared the following table to track the activity of this investment during the year. Rising Star Co.: Date Market Price per Share Jan. 1 $100 June 30 Dec. 31 Required a. Prepare the following journal entries for Champion Inc. 1. Purchase of the call option on January 1. Ref. 1. 2. 90 102 3. Call Option: Fair Value $125 50 400 2. Adjust the call option to fair value on June 30. 3. Adjust the call option to fair value on December 31. Account Name To record purchase of call option To record fair value adjustment of call option To record fair value adjustment of call option V V V Dr. 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 b. What is the impact on the income statement of holding this speculative investment during the year? • Note: Do not use a negative sign with your answer. Income Statement Other revenue A Year 1 0 Cash Grain Inventory Call Option Futures Contract Put Option Interest Rate Swap Contract Fair Value Adjustment Note Payable Cost of Goods Sold Interest Expense Interest Revenue Unrealized Gain or Loss-OCI Gain on Settlement of Call Option-Income Loss on Settlement of Call Option-Income Unrealized Gain or Loss-Income N/A-Debit N/A-Credit Champion Inc. purchased a call option as a speculative investment on January 1 for $125, allowing Champion Inc. to purchase 200 of Rising Star Co. common shares at $100 per share through January 1 of the following year. Champion Inc. prepared the following table to track the activity of this investment during the year. Rising Star Co.: Date Market Price per Share Jan. 1 $100 June 30 Dec. 31 Required a. Prepare the following journal entries for Champion Inc. 1. Purchase of the call option on January 1. Ref. 1. 2. 90 102 3. Call Option: Fair Value $125 50 400 2. Adjust the call option to fair value on June 30. 3. Adjust the call option to fair value on December 31. Account Name To record purchase of call option To record fair value adjustment of call option To record fair value adjustment of call option V V V Dr. 0 0 0 0 0 0 Cr. 0 0 0 0 0 0 b. What is the impact on the income statement of holding this speculative investment during the year? • Note: Do not use a negative sign with your answer. Income Statement Other revenue A Year 1 0 Cash Grain Inventory Call Option Futures Contract Put Option Interest Rate Swap Contract Fair Value Adjustment Note Payable Cost of Goods Sold Interest Expense Interest Revenue Unrealized Gain or Loss-OCI Gain on Settlement of Call Option-Income Loss on Settlement of Call Option-Income Unrealized Gain or Loss-Income N/A-Debit N/A-Credit
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Related Book For
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
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