On April 1, 2020, Gamma Corp. purchases acall option for $ 500, which gives Gamma theright to buy 1,000 shares of Delta Inc. for $ 30each until December 1, 2020. Delta Inc. sharesare currently trading for $ 30. On June 30,2020, the option is trading at $ 4,800 and theshares at $ 32 each. On December 1, 2020,Gamma exercises the option while the sharesare trading at $38 each.Instructions:a. Determine the intrinsic value and the timevalue of the option on April 1, 2020.b. Determine the intrinsic value and the timevalue of the option On June 30, 2020.c. Prepare necessary journal entries to recordthe purchase of the option on April 1, theadjustment on June 30, 2020, Gamma'squarter end, the exercise of the option onDecember 1, if Gamma settles the option bytaking delivery.

Options contract provide option holder a right to enter into a transaction at a particular price for…

On April 1, 2020, Gamma Corp. purchases a call option for $ 500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $ 30 each until December 1, 2020. Delta Inc. shares are currently trading for $ 30. On June 30, 2020, the option is trading at $ 4,800 and the shares at $ 32 each. On December 1, 2020, Gamma exercises the option while the shares are trading at $38 each. Instructions:

On April 1, 2020, Gamma Corp. purchases a call option for $ 500, which gives Gamma the right to buy 1,000 shares of Delta Inc. for $ 30 each until December 1, 2020. Delta Inc. shares are currently trading for $ 30. On June 30, 2020, the option is trading at $ 4,800 and the shares at $ 32 each. On December 1, 2020, Gamma exercises the option while the shares are trading at $38 each. Instructions:

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 13RE

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