Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $100 for the call option.
Using the information above, the call option would be recorded in the accounts of Hall as
A) an asset.
B) a liability.
C) a gain.
D) would not be recorded in the accounts (memorandum entry only).

Question

Quizplus · Accepted Answer

The call option gives Hall the right to purchase 1,000 shares of WSM stock at $100 per share. This right has value and is considered an asset. Therefore, the call option would be recorded as an asset on Hall's balance sheet.

Hall, Inc, Enters into a Call Option Contract with Bennett Investment