Corine Ltd,a trader bought a December put option for 10 $100 000 10% treasury bonds at a premium of $3.95 on January 1,2010.Year end for Corine is 30 June when the price for a December put option for $100 000 10% treasury bonds is $3.50.
What would be the journal entry for 30 June 2010?
A) Dr Loss on options contract $\quad \$ 4500$
$\mathrm { Cr }$ Investment in options contract$\quad\$ 4500$
B) $\begin{array} { l l l }
\text { Dr Loss on options contract } & \$ 450 & \
\text { Cr Investment in options contract } & & \$ 450
\end{array}$
C) Dr Investment in options contract $\quad \$ 4500$
$\mathrm { Cr }$ Gain on options contract$\quad\$ 4500$
D) Dr Investment in options contract $\quad \$ 450$
$\mathrm { Cr }$ Gain on options contract$\quad\$ 450$

Question

Corine Ltd,a trader bought a December put option for 10 $100 000 10% treasury bonds at a premium of $3.95 on January 1,2010.Year end for Corine is 30 June when the price for a December put option for $100 000 10% treasury bonds is $3.50.
What would be the journal entry for 30 June 2010? 
A) Dr Loss on options contract $\quad \$ 4500$
$\mathrm { Cr }$ Investment in options contract$\quad\$ 4500$
B) $\begin{array} { l l l } 
\text { Dr Loss on options contract } & \$ 450 & \
\text { Cr Investment in options contract } & & \$ 450
\end{array}$
C) Dr Investment in options contract $\quad \$ 4500$
$\mathrm { Cr }$ Gain on options contract$\quad\$ 4500$
D) Dr Investment in options contract $\quad \$ 450$
$\mathrm { Cr }$ Gain on options contract$\quad\$ 450$

Quizplus · Accepted Answer

The premium paid on the put option is an investment. At the year-end, the investment is marked to market, resulting in a loss of $4,500.

Corine Ltd,a Trader Bought a December Put Option for 10 $4500\quad \$ 4500$4500

Corine Ltd,a Trader Bought a December Put Option for 10 $\quad \$ 4500$