On December 1,2014 a Company Bought a Call Option Costing

question 91

Multiple Choice

On December 1,2014 a company bought a call option costing $100,000 as a speculative investment.The call option gave the company the right to purchase 100,000 barrels of oil for $110 per barrel during April 2015.As of December 31,2014 the call option had a value of $125,000.The company liquidated the call option on April 15,2015 in exchange for $175,000.Which of the following accurately describes GAAP accounting for this call option?

• A)The realized gain applicable to the year ending December 31,2014 is $25,000.
• B)The realized gain recognized on April 15,2015 is $75,000.
• C)The unrealized gain recognized on April 15,2015 is $50,000.
• D)The call option will be reported on the December 31,2014 balance sheet at $125,000 and a $25,000 unrealized gain will be reported as a component of income from continuing operations for the year ending December 31,2014.

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