Journal Questions
Mr. Berkowitz buys 1,000 equity call options of Normal Electricals for $4 per share for a strike price of $25 on June 12, expiry date being July 16. Brokerage is 0.25 percent and is settled on T + 2 basis. Pass necessary journal entries for the following events:
1. Purchase of the options.
2. Brokerage paid for purchase.
3. At the end of the reporting period, June 30, the shares are quoted at $28 per share and the options were worth $2 per share. Ascertain the fair value at that time and pass entries.
4. Assume the options are exercised on the expiry date and for the price of $27. Pass relevant journal entries on July 16, the expiry date.
Long Call, Nonhedging—Functional Currency US$
Prepare journal entries, general ledgers, trial balance, income statement, and balance sheet for the following scenario.
Freedom Fund had the following trades in GE in the options market through ADC brokers, and on January 1 introduced $100,000 as capital.
Date Product StrikePrice Expiry Quantity Rate B/S Brokerage
25-Jan-X1 Call $50 16-Mar-X1 10,000 $5.00 B $540
22-Feb-X1 Call $50 16-Mar-X1 16,000 $4.00 B $620
11-Mar-X1 Call $50 16-Mar-X1 16,000 $3.00 S $320
Liquidation Method
FIFO
Market Rate of Underlying Stock, GE
January 31: 40.00
February 28: 55.00
March 16: $55
Market Rate of GE Call Option with Strike Price $50, Expiry March 16
January 31: 2
February 28: 6.00
Functional Currency
US$
Long Call, Nonhedging—Trade Currency AUD
Prepare journal entries, general ledgers, trial balance, income statement, and balance sheet for the following scenario.
AA Fund had the following trades in Metadata in the options market through DDT Man brokers. The stock exchange requires that the writer of the options maintain 10 percent of the value of the contract as margin money throughout the life of the contract. On January 1, AA Fund introduced $100,000 as capital and converted US$50,000 into AUD at the rate of 1.25.
Date Product StrikePrice Expiry Quantity Rate (AUD) B/S Brokerage (AUD)
21-Jan-X1 Call AUD 40 15-Mar-X1 12,000 4.00 B $500
20-Feb-X1 Call AUD 40 15-Mar-X1 13,000 5.00 B $600
12-Mar-X1 Call AUD 40 15-Mar-X1 15,000 4.00 S $300
Liquidation Method
FIFO
Market Rate of Underlying Stock, Metadata (AUD)
January 31: 35.00
February 28: 40.00
March 16:45
Market Rate of Metadata Call Option with Strike Price $40, Expiry March 15
January 31: 3
February 28: 5.00
FX Rate AUD/US$
January 21: 1.2178
January 31: 1.28964
February 20: 1.26345
February 28: 1.24789
March 12: 1.23645
March 15: 1.27893
Functional Currency
US$
Short Call, Nonhedging—Trade Currency JPY
Prepare journal entries, general ledgers, trial balance, income statement, and balance sheet for the following scenario.
Stone Fund had the following trades in Gamut in the options market through MML brokers. The stock exchange requires that the writer of the options maintain 15 percent of the value of the contract as margin money throughout the life of the contract. On February 1, Stone Fund introduced $150,000 as capital and converted half of it into JPY at 122.50.
Date Product StrikePrice Expiry Quantity Rate (JPY) B/S Brokerage (JPY)
23-Feb-X1 Call JPY 55 16-Apr-X1 10,000 6.00 S 520
22-Mar-X1 Call JPY 55 16-Apr-X1 16,000 5.00 S 600
10-Apr-X1 Call JPY 55 16-Apr-X1 16,000 4.00 B 300
Liquidation Method
FIFO
Market Rate of Underlying Stock, Gamut
February 28: 59.00
March 31: 58
April 16: 61
Market Rate of Gamut Call Option with Strike Price $55, Expiry April 16
February 28: 5
March 31: 4
FX Rate JPY/US$
February 23: 123.589
February 28:122.569
March 22: 124.587
March 31: 124.7891
April 10: 123.1562
April 16: 123.4569
Functional Currency
US$
