You Purchase One IBM July 120 Put Contract for a Premium

question 50

Multiple Choice

You purchase one IBM July 120 put contract for a premium of $3. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realise a ________ on the investment.

• A)$300 profit
• B)$300 loss
• C)$500 loss
• D)$200 profit

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Definitions:

Allowance Method

A technique in accounting to estimate and deduct bad debts from accounts receivable based on historical data and projections.

Uncollectible Accounts

Accounts receivable that a company has determined it will not be able to collect due to customer default.

Direct Write-off

A method of accounting for bad debts where uncollectible accounts receivable are directly written off against income at the time they are deemed uncollectible.

Bad Debts Recovered

When an account receivable has been written off and is recovered, this account, which is in the Other Revenue category, is credited in the direct write-off method if the recovery is in a year following the write-off.