Purchased call options
On April 1, 2021, Petty Ltd. purchased a call option from Fidelity Investments Corporation. The option gave Petty the right to buy 5,000 shares in Monahan Ltd., at a price of $ 50 per share. On the day Petty purchased the option, Monahan shares were trading at $ 50 each. Petty paid $ 1,000 for the options. On April 30, 2021, the Monahan shares were trading at $ 53.50 each, and the options for Monahan shares were trading at $ 18,000. On May 15, Petty settled the options in cash when the Monahan shares were trading at $ 56 and the options were trading at $ 30,000.
Instructions
a) Prepare the journal entries to record the above transactions.
b) Prepare the May 15 journal entry assuming Petty accepted the shares in Monahan instead.

Question

Quizplus · Accepted Answer

The Answer of Purchased call options
On April 1, 2021, Petty Ltd. purchased a call option from Fidelity Investments Corporation. The option gave Petty the right to buy 5,000 shares in Monahan Ltd., at a price of $ 50 per share. On the day Petty purchased the option, Monahan shares were trading at $ 50 each. Petty paid $ 1,000 for the options. On April 30, 2021, the Monahan shares were trading at $ 53.50 each, and the options for Monahan shares were trading at $ 18,000. On May 15, Petty settled the options in cash when the Monahan shares were trading at $ 56 and the options were trading at $ 30,000.
Instructions
a) Prepare the journal entries to record the above transactions.
b) Prepare the May 15 journal entry assuming Petty accepted the shares in Monahan instead.

Purchased Call Options On April 1, 2021, Petty Ltd. Purchased a Call Option