Question

Johnstone AG purchased a put option on Ewing ordinary shares on July 7, 2020, for €240....

Johnstone AG purchased a put option on Ewing ordinary shares on July 7, 2020, for €240. The put option is for 200 shares, and the strike price is €70. (The market price of an ordinary share of Ewing on that date is €70.) The option expires on January 31, 2021. The following data are available with respect to the put option.

Date Market Price of Ewing Shares Time Value of Put Option

September 30, 2020 €77 per share €125

December 31, 2020 67 per share 50

January 10, 2021 68 per share 40

Required:

Prepare the journal entries for Johnstone for the following dates.

a. July 7, 2020—Investment in put option on Ewing shares.

b. September 30, 2020—Johnstone prepares financial statements.

c. December 31, 2020—Johnstone prepares financial statements.

d. January 10, 2021— Johnstone settles the put option on the Ewing shares

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Answer #1
Date Particulars Debit € Credit €
a. July 7, 2020 Put Option €240
Cash €240
(Recording of Investment in Put Option)
b. Sep 30, 2020 Unrealized Holding Gain or Loss Income €115
Put Option (€240 - €125) €115
(Recording of unrealized holding gains or loss)
c. Dec 31, 2020 Unrealized Holding Gain or Loss Income €75
Put Option (€125 - €50 ) €75
(Recording of unrealized holding gains or loss)
d. Jan 10, 2021 Loss on Settlement of Put Option €10
Put Option ( €50 - €40 ) €10
(Recording of loss on Settlement of Put Option)
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