Hall, Inc, Enters into a Call Option Contract with Bennett Investment

question 16

Multiple Choice

Hall, Inc., enters into a call option contract with Bennett Investment Co. on January 2, 2011. This contract gives Hall the option to purchase 1,000 shares of WSM stock at $100 per share. The option expires on April 30, 2011. WSM shares are trading at $100 per share on January 2, 2011, at which time Hall pays $100 for the call option.
Using the information above, assume that the price of the WSM shares has risen to $120 per share on March 31, 2011, and the Hall is preparing financial statements for the quarter ending March 31. As regards this option, Hall, Inc., would report which of the following?

• A) A $20,000 realized gain
• B) A $20,000 unrealized gain
• C) A deferred gain of $19,900
• D) Nothing would be reported in the financial statements or the notes thereto.

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Definitions:

Strict Product Liability

A legal doctrine that holds sellers, distributors, or manufacturers liable for injuries caused by defective products to consumers, without the need to prove negligence.

Proximate Cause

In tort law, the connection between the unreasonable conduct and the resulting harm. Proximate cause is determined by asking whether the harm that resulted from the conduct was foreseeable at the time of the original negligent act.

Actual Cause

In tort law, the relationship between the unreasonable conduct and the injury to the innocent party, whether the injury was or was not foreseeable. Actual cause is also referred to as cause-in-fact.

Equal Credit Opportunity Act

A U.S. law that aims to give all individuals an equal chance to apply for loans and other forms of credit, regardless of race, religion, national origin, gender, age, or marital status.