On May 1 of the Current Year, Orr Company Purchases

question 42

Multiple Choice

On May 1 of the current year, Orr Company purchases a call option on 15,000 bushels of corn with delivery in July for a premium of $1,200 and a strike price of $3.05 per bushel.The values of the option at the end of May and June are $1,125 and $1,007, respectively.The option is sold on July 7th for $1,133.Orr Company prepares monthly financial statements.

• A)​On May 1, Orr Company records a memo entry to record acquisition of the contract which has no value.
• B)​For May, Orr Company records a gain on the contract of $75.
• C)​For June, Orr Company records a loss of $193.
• D)​At the sale of the option contract on July 7, Orr Company records a gain of $126.

---

Definitions:

Nonbiological Reservoirs

Natural or artificial environments that do not involve living organisms, which can store various substances or elements.

Biogeochemical Cycles

Natural pathways by which essential elements or compounds move through the biosphere, lithosphere, atmosphere, and hydrosphere.

Carbon

A chemical element with symbol C, capable of forming many compounds including carbon dioxide and organic molecules.

Atmosphere

The layer of gases surrounding a planet or celestial body, gravitationally bound to it, and essential for many life forms.