Problem 1714 Buffalo Co purchased a put option on Echo commo

Problem 17-14 Buffalo Co. purchased a put option on Echo common shares on January 7, 2017, for $371. The put option is for 410 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2017. The following data are available with respect to the put option. Date Market Price of Echo Shares Time Value of Put Option March 31, 2017 June 30, 2017 July 6, 2017 $81 per share 83 per share 78 per share $212 98 27 Prepare the journal entries for Buffalo Co. for the following dates. (a) January 7, 2017-Investment in put option on Echo shares. (b) March 31, 2017-Buffalo prepares financial statements (c) June 30, 2017-Buffalo prepares financial statements. (d) July 6, 2017-Buffalo settles the put option on the Echo shares. (Credit account titles are automatically indented when 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.)

Solution

Date Account Tittles and Explaination Debit Credit (a) January 07 2017 Put option $    371 Cash $    371 (b) March 31 2017 Put option $1,640 Unrealized holding gain or loss - income ($85 - $81) X 410 shares $1,640 Unrealized holding gain or loss - income ($371 - $212) $    159 Put option $    159 (c) June 30 2017 Unrealized holding gain or loss - income ($83 - $81) X 410 shares $    820 Put option $    820 Unrealized holding gain or loss - income ($212 - $98) $    114 Put option $    114 (d) July 06 2017 Unrealized holding gain or loss - income ($98 - $27) $      71 Put option $      71 Cash ($85 - $78) X 410 $2,870 Gain on settlement of put option $2,023 Put option* $    847 *Put option ($371 + $1640 - $159 - $820 - $114 - $71) = $    847