On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: Number of shares: 100 • Strike price: $220 per share Expiration date: May 31, 2022 • Total cost of the option contract: $100 • Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $220 per share. The following additional information is known: • On March 31, 2022, the price of ICM stock was $210 per share. A market appraisal indicated that the time value of the option contract was $80. • On May 10, 2022, the price of ICM stock was $215 per share. A market appraisal indicated that the time value of the option contract was $70. On this date, Rosewood settled the option contract. Required: 1. Indicate any amounts that Rosewood Corp. would have included in its March 2022 quarterly financial statements related to the option contract.

On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: Number of shares: 100 • Strike price: $220 per share Expiration date: May 31, 2022 • Total cost of the option contract: $100 • Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $220 per share. The following additional information is known: • On March 31, 2022, the price of ICM stock was $210 per share. A market appraisal indicated that the time value of the option contract was $80. • On May 10, 2022, the price of ICM stock was $215 per share. A market appraisal indicated that the time value of the option contract was $70. On this date, Rosewood settled the option contract. Required: 1. Indicate any amounts that Rosewood Corp. would have included in its March 2022 quarterly financial statements related to the option contract.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter15: Contributed Capital

Section: Chapter Questions

Problem 1P: Subscriptions On August 3, 2019, the date of incorporation, Quinn Company accepts separate...

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Subscriptions On August 3, 2019, the date of incorporation, Quinn Company accepts separate subscriptions for 1,000 shares of 100 par preferred stock at 104 per share and 9,000 shares of 110-par, no-stated-value common stock for 22 per sl1are. The subscription contracts require a 10% down payment, with the balance due by November 1, 2019. Shares are issued to each subscriber upon full payment. On November 1, Quinn received the remaining balances for the shares of preferred stock and common stock. Required: Prepare journal entries to record all the transactions related to: 1. the preferred stock 2. the common stock
Convertible Preferred Stock On January 2, 2019, Bray Corporation issues 900 shares of 100 par convertible preferred stock for 117 per share. On January 7, 2020, all the preferred shareholders convert their shares to common stock. Required: 1. Prepare the January 2, 2019, journal entry to record the issuance of the preferred stock. 2. Prepare the January 7, 2020, journal entry to record the conversion, assuming the preferred stock contract states that: a. each share of preferred stock is convertible into 7 shares of 10 par common stock b. each share of preferred stock is convertible into 12 shares of 10 par common stock
On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
On January 1, 2022, Rosewood Corp. purchased a put option on shares of ICM stock. Terms of the contract were as follows: Number of shares: 100 Strike price: $200 per share Expiration date: May 31, 2022 Total cost of the option contract: $80 Seller of the option contract: First Investment Bank On January 1, 2022, ICM stock was trading at $200 per share.The following additional information is known: On March 31, 2022, the price of ICM stock was $220 per share. A market appraisal indicated that the time value of the option contract was $60. On May 10, 2022, the price of ICM stock was $185 per share. A market appraisal indicated that the time value of the option contract was $50. On this date, Rosewood settled the option contract. What is the dollar value of put option that Rosewood Corp. would have included in its March 2022 quarterly financial statements?
On March 1, 2022, Jensen Corp. purchased a call option on shares of YTV stock. The contract was for 100 shares at a strike price of $120 per share, with an expiration date of May 31, 2022. The option contract premium was $30. On March 31, a market appraisal estimated the time value of the option to be $20. Jensen settled the option contract on May 10. Prices of YTV stock during the option period are provided below. March 1 March 31 May 10 Price of YTV stock: $120 $110 $115 At what amount would Jensen report as the value of the call option in its March 31, 2022 balance sheet? Call option account balance as off March 31 :
A-12: Put option On March 1, 2022, Ferguson Corp. purchased a put option on shares of SST stock. The contract was for 100 shares at a strike price of $90 per share, with an expiration date of May 31, 2022. Ferguson settled the option on May 5 (assume cash settlement). Additional information pertaining to the option is provided below. March 1 March 31 May 5 Price of SST stock: $90 $80 $85 Time value of option: $50 $40 $30 Required:1. What is cost of the option paid by Ferguson Corp. on March 1, 2022?2. Compute the balance of the option account on May 5 before the settlement.
Case 1On January 1, 2018, Darna company granted an employee an option to purchase 40,000 ordinary shares with P5 par value at P20 per share. The option became exercisable on December 31, 2019, after the employee completed two years of service. The fair value of the share option is P15. The option was exercised on January 15, 2020. The share prices are P30 on January 1, 2018, P50 on December 31, 2019, and P60 on January 15, 2020. What is the compensation expense for 2018? Prepare the journal entry to record compensation and the exercise of share options.
On January 2, 2020, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2020 (the intrinsic value is therefore $0). On March 31, 2020, the market price for Merchant stock is $53 per share, and the time value of the option is $200. Instructions a. Prepare the journal entry to record the purchase of the call option on January 2, 2020. b. Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2020. c. What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2020?
On January 1, 2020, ABC Corporation granted an employee an option to purchase 3,000 shares of ABC’s P5 par value ordinary share at P20 each. The option became exercisable on December 31, 2022. The options was exercised on January 10, 2023. The market prices of ABC’s share capital were as follows: January 1, 2020 – P30; December 31, 2020 – P50; December 31,2021 – 55; December 31, 2022 – 65; January 10, 2023 – P75. The company cannot reliably determine the fair value of the share option, so it decided to use the intrinsic method. For the year 2022, how much should ABC recognize as compensation expense?