question archive On November 30, 2020, ABC Inc made the following journal entry to record the exercise of a call option it purchased on May 1, 2020 for $4,500, which gave it a right to purchase shares of Baltic Inc
On November 30, 2020, ABC Inc made the following journal entry to record the exercise of a call option it purchased on May 1, 2020 for $4,500, which gave it a right to purchase shares of Baltic Inc
Subject:FinancePrice: Bought3
On November 30, 2020, ABC Inc made the following journal entry to record the exercise of a call option it purchased on May 1, 2020 for $4,500, which gave it a right to purchase shares of Baltic Inc. for $8 each until December 31, 2020. The fair value of the call option was last updated on October 31, 2020.
November 30, 2020:
Investment- Baltic Inc. Common Shares DR....$100,000
Derivative - Call Option CR....$18,000
Cash CR....$64,000
Gain on Derivative-Call Options CR....$18,000
You are required to select the alphabet of the one best answer to each of the questions listed below and input it in the computer.
1) The market value of Baltic shares on November 30, 2020, the number of shares purchased, the total overall profit or loss from the call option and the fair value of the call option on October 31, 2020 were, respectively:
a.
$10.00 per share; 10,000 shares; $31,500 gain; $18,000 call option value Oct. 31, 2020.
b.
$10.00 per share; 10,000 shares; $18,000 gain; $18,000 call option value Oct. 31, 2020.
c.
$12.50 per share; 8,000 shares; $36,000 gain; $36,000 call option value Oct. 31, 2020.
d.
$12.50 per share; 8,000 shares; $31,500 gain; $18,000 call option value Oct. 31, 2020.
e.
None of the above.
2) Assuming the same facts in part 1 above, how much would ABC Inc. have asked for as a cash settlement of the call option on November 30, 2020 had they decided not to take delivery of the Baltic Inc. shares?
a.
$100,000.
b.
$36,000
c.
$31,500.
d.
$64,000.
e.
None of the above.
