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:

Reservation Policy

A policy pertaining to the designation of specific lands for indigenous peoples, often characterized by forced relocations and aimed at assimilating indigenous populations into mainstream society.

Cattle Ranching

The business of raising and managing cattle for meat, milk, and other products, typically conducted on large expanses of land.

Cattle Industry

A sector of agriculture focused on the raising, breeding, and marketing of cattle for meat, dairy products, and other by-products.

Railroad Expansion

The rapid growth of railroad networks in the 19th century, facilitating economic development, westward expansion, and changes in transportation across nations.