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.

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Definitions:

Equilibrium Price

The market price at which the quantity of a good supplied equals the quantity demanded.

Demand And Supply Diagram

A graphical representation used in economics to show the relationship between the price of a good and the quantity demanded and supplied at that price.

Health Care Consumed

The total amount of health services and goods utilized by individuals or a population.

Copayment

The percentage of (say, health care) costs that an insured individual pays while the insurer pays the remainder.