Question - Call Option: On August 15, 2010, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $545. The notional value of the call option is 606 shares, and the option price is $61. (Market price of an Outkast share is $61.) The option expires on January 31, 2011. The following data are available with respect to the call option.
|
Date
|
Market Price of
Counting Crows Shares
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Time Value
of Call Option
|
|
September 30, 2010
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$73 per share
|
$273
|
|
December 31, 2010
|
$70 per share
|
98
|
|
January 15, 2011
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$71 per share
|
45
|
Prepare the journal entries for Outkast for the following dates.
(a) Investment in call option on Counting Crows shares on August 15, 2010.
(b) September 30, 2010-Outkast prepares financial statements.
(c) December 31, 2010-Outkast prepares financial statements.
(d) January 15, 2011-Outkast settles the call option on the Counting Crows shares.