On April 1, 2020, Gamma Corp. purchases a call option for $ 500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $ 30 each until December 1, 2020. Delta Inc. shares are currently trading for $ 30. On June 30, 2020, the option is trading at $ 4,800 and the shares at $ 32 each. On December 1, 2020, Gamma exercises the option while the shares are trading at $38 each. Instructions:
On April 1, 2020, Gamma Corp. purchases a call option for $ 500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $ 30 each until December 1, 2020. Delta Inc. shares are currently trading for $ 30. On June 30, 2020, the option is trading at $ 4,800 and the shares at $ 32 each. On December 1, 2020, Gamma exercises the option while the shares are trading at $38 each. Instructions:
Chapter19: Deferred Compensation
Section: Chapter Questions
Problem 26CE: On April 5, 2017, Gustavo was granted an NQSO for 200 shares of common stock at 50 per share. On the...
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Transcribed Image Text:On April 1, 2020, Gamma Corp. purchases a
call option for $ 500, which gives Gamma the
right to buy 1,000 shares of Delta Inc. for $ 30
each until December 1, 2020. Delta Inc. shares
are currently trading for $ 30. On June 30,
2020, the option is trading at $ 4,800 and the
shares at $ 32 each. On December 1, 2020,
Gamma exercises the option while the shares
are trading at $38 each.
Instructions:
a. Determine the intrinsic value and the time
value of the option on April 1, 2020.
b. Determine the intrinsic value and the time
value of the option On June 30, 2020.
c. Prepare necessary journal entries to record
the purchase of the option on April 1, the
adjustment on June 30, 2020, Gamma's
quarter end, the exercise of the option on
December 1, if Gamma settles the option by
taking delivery.
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