ACCT 320

Spring 2021
Worksheet – Derivatives
1) Hummel Co. purchased a put option on Olney ordinary shares on July 7, 2018, for
€100. The put option is for 200 shares, and the strike price is €30. The option expires
on January 31, 2019. The following data are available with respect to the put option:

Date Market Price of Olney Shares Time Value of Put Option

September 30, 2018 €32 per share €53
December 31, 2018 €31 per share 21
January 31, 2019 €33 per share 0

Instructions
Prepare the journal entries for Hummel Co. for the following dates:
(a) July 7, 2018—Investment in put option on Olney shares.
(b) September 30, 2018— Hummel prepares financial statements.
(c) December 31, 2018— Hummel prepares financial statements.
(d) January 31, 2019—Put option expires.

*Solution 17-142
July 7, 2018
(a) Put Option.................................................................................... 100
Cash................................................................................. 100

September 30, 2018

(b) Unrealized Holding Gain or Loss—Income................................... 47
Put Option (€100 – €53).................................................... 47

Solution 17-142 (cont.)

December 31, 2018
(c) Unrealized Holding Gain or Loss—Income................................... 32
Put Option (€53 – €21)...................................................... 32

January 31, 2019

(d) Loss on Settlement of Put Option................................................. 21
Put Option (€21 – €0)........................................................ 21
Question 2
When the raw materials are purchased, the gains recognised in other comprehensive income can be
reclassified against the carrying amount of the inventory.