Joined: 04 Apr 2009 Location: United States
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Posted: 09 May 2009 at 13:27 | IP Logged
36. On December 1 of the current year, Bann Co. entered into an option contract to purchase 2,000 shares of Norta Co. stock for $40 per share (the same as the current market price) by the end of the next two months. The time value of the option contract is $600. At the end of December, Norta's stock was selling for $43, and the time value of the option is now $400. If Bann does not exercise its option until January of the subsequent year, which of the following changes would reflect the proper accounting treatment for this transaction on Bann's December 31, year-end financial statements?
a. The option value will be disclosed in the footnotes only. b. Other comprehensive income will increase by $6,000. c. Net income will increase by $5,800. d. Current assets will decrease by $200.
Explanation Choice "c" is correct.
Please help me to solve this problem. I came up with answer for this - NI is inc. by $6,000.
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