Question

O On August 1, 2020, Sunland Ltd. purchased a call option from Starco Corporation. The option...

O

On August 1, 2020, Sunland Ltd. purchased a call option from Starco Corporation. The option gave Sunland the right to buy 7,700 shares in a third company, Dillon Ltd., at a price of $9 per share. On the day Sunland purchased the option, Dillon shares were trading at $9 each. Sunland paid $1,500 for the options. On August 31, 2020, the Dillon shares were trading at $11 each, and the options for Dillon shares were trading at $23,800. On September 15, Sunland settled the options in cash when the Dillon shares were trading at $15 and the options were trading at $46,200.
Prepare the journal entries to record the above transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Aug. 1, 2020Aug. 31, 2020Sept. 15, 2020
(To record the acquisition of the option.)

Aug. 1, 2020Aug. 31, 2020Sept. 15, 2020
(To record the change in value of the option.)

Aug. 1, 2020Aug. 31, 2020Sept. 15, 2020

(To record the change in value of the option.)

(To record the settlement of the option.)

SHOW LIST OF ACCOUNTS

LINK TO TEXT
Prepare the September 15 journal entry settling the option for cash, and assuming Sunland accepted instead the shares in Dillon. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Sept. 15, 2020

(To record the change in value of the option.)

(To take delivery of the shares
using the option.)
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