On August 15, 2013, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of th
On August 15, 2013, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. The option expires on January 31, 2014. The following data are available with respect to the call option.
\r\nMarket Price of Counting Time Value of Call
\r\nDate Crows Shares Option
\r\nSeptember 30, 2013 $48 per share $180
\r\nDecember 31, 2013 $46 per share 65
\r\nJanuary 15, 2014 $47 per share 30
\r\nInstructions
\r\nPrepare the journal entries for Outkast for the following dates.
\r\n(a) Investment in call option on Counting Crows shares on August 15, 2013.
\r\n(b) September 30, 2013—Outkast prepares financial statements.
\r\n(c) December 31, 2013—Outkast prepares financial statements.
\r\n(d) January 15, 2014—Outkast settles the call option on the Counting Crows shares.