On August 1, 2020, Sarasota Ltd. purchased a call option from DDR Investments Corporation. The option gave Sarasota the right to buy 18,000 shares in a third company, MGL Ltd., at a price of $23.25 per share. On the day Sarasota purchased the option, MGL shares were trading at $23.25 each. Sarasota paid $900 for the options. On August 31, 2020, the MGL shares were trading at $25.50 each, and the options for MGL shares were trading at $40,900. On September 15, Sarasota settled the options in cash when the MGL shares were trading at $27.25, and the options were trading at $72,000.

Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Aug. 1Aug. 31Sept. 15
	(To record the acquisition of the option.)
Aug. 1Aug. 31Sept. 15
	(To record the change in value of the option.)
Aug. 1Aug. 31Sept. 15
	(To record the change in value of the option.)
	(To record the settlement of the option.)

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List of Accounts

Prepare the September 15 journal entry assuming Sarasota accepted instead of the shares in MGL. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Sept. 15
	(To record the change in value of the option.)
	(To take delivery of the shares using the option.)

 

Answer rating: 100% (QA)

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