On April 1, 2021, Pax Ltd. purchased a call option from Fidelity Investments Corporation. The...
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On April 1, 2021, Pax Ltd. purchased a call option from Fidelity Investments Corporation. The option gave Pax the right to buy 5,000 shares in Mott Ltd., at a price of $ 50 per share. On the day Pax purchased the option, Mott shares were trading at $ 50 each. Pax paid $ 1,000 for the options. On April 30, 2021, the Mott shares were trading at $ 49.50 each, and the options for Mott shares were trading at $ 200. On May 15, Pax settled the options in cash when the Mott shares were trading at $52 and the options value was $ 13,000.
a) Prepare the journal entries to record the above transactions on.
i. April 1, 2021.
ii. April 30, 2021.
iii. May 15, 2021
b) Prepare the May 15 journal entry assuming Pax accepted the shares in Mott instead.
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