Allman,Inc. ,enters into a call option contract with Betts Investment Co.on January 2,2014.This contract gives Allman the option to purchase 1,000 shares of Upmann stock at $100 per share.The option expires on April 30,2014.Upmann shares are trading at $100 per share on January 2,2014,at which time Allman pays $200 for the call option.
-Using the information above,the call option would be recorded in the accounts of Allman 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 Allman the right to purchase the Upmann stock at a fixed price, which has value and is considered an asset. Therefore, the call option would be recorded as an asset in the accounts of Allman.