The purchase price of an option contract is typically recorded as
A)an expense.
B)an asset.
C)an amortized cost.
D)a component of shareholders equity.

Question

Quizplus · Accepted Answer

The purchase price of an option contract is recorded as an asset on the balance sheet because it represents a right to exercise the option at a later time. It is not an expense because the cost is not incurred in earning revenue, and it is not a component of shareholders equity because it does not represent ownership in the company. It may be amortized over the life of the option contract if it is a long-term investment.

The Purchase Price of an Option Contract Is Typically Recorded