Corine Ltd,a Trader Bought a December Put Option for 10 $\$ 100000$

question 30

Multiple Choice

Corine Ltd,a trader bought a December put option for 10 $100 000 10% treasury bonds at a premium of $3.95 on January 1,2010.Year end for Corine is 30 June when the price for a December put option for $\$ 100000$ 10% treasury bonds is $3.50.On 31 July 2010,Corine Ltd sold the option for $4.00.What are the journal entries to record this transaction?

• A)
• \(\begin{array} { l l l }
• \text { Dr } & \text { Cash at Bank } & \$ 40000 \\
• \text { Cr } & \text { Gain on options contract } & \$ 5000 \\
• \text { Cr } & \text { Investmentin options } & \$ 35000
• \end{array}\)
• B)
• \(\begin{array} { l l l }
• \text { Dr } & \text { Cash at Bank } & \$ 40000 \\
• \text { Cr } & \text { Gain on options contract } & \$ 500 \\
• \text { Cr } & \text { Investmentin options } & \$ 39,500
• \end{array}\)
• C)
• C)
• \(\begin{array}{l}
• \begin{array}{ll}
• \text { Dr Investment in options } & \$ 35000 \\
• \text { Dr Loss on options contract } & \$ 5000
• \end{array}\\
• \text { Cr Cashat Bank }&\$ 40000
• \end{array}\)
• D)
• \[\begin{array} { c r r }
• \text { Dr Investment in options } & \$ 39500 & \\
• \text { Dr Loss on options contract } & \$ 500 & \\
• \text { Cr } \quad \text { Cash at Bank } & & \$ 40000
• \end{array}\]

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales and earnings without increasing its financial leverage.

Strategic Planning

The process of defining a business's strategy or direction and making decisions on allocating its resources to pursue this strategy.

Strategic Planning

The process of defining a company's direction and making decisions on allocating resources to pursue this direction.

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and profits without needing to increase its financial leverage.