Question

On July 5, 2020, Alpha Corp. purchased a call option for $ 2,400, giving it the right to buy 2,000 shares of Omega Corp. for $ 20 per share. On August 18, 2020, when the option value is $ 12,000, Omega settles the option for cash.

The entry on Alpha’s books to record the settlement is:

Cash or Loss on Derivatives.................................................................	12,000
Derivatives—Financial Assets/Liabilities.......		12,000

Cash.................................................................	12,000
Gain or Loss on Derivatives ...........................................................		12,000

Cash.................................................................	12,000
Derivatives—Financial Assets/Liabilities.......		2,400
Gain or Loss on Derivatives ...........................................................		9,600

Derivatives—Financial Assets/Liabilities.............	2,400
Cash...........................................................	9,600
Gain or Loss on Derivatives...........................................................		12,000

Answer 1

Accounts Titles and Explanation	Debit	Credit
Cash	$ 12,000
Derivatives—Financial Assets/Liabilities		2,400
Gain or Loss on Derivatives                   ( $ 12,000 (-) $ 2,400 )		$ 9,600
(To record the settlement )
Option (C ) is Correct