On 30th April 2022, the share price of GoodPay Ltd was $18, which is less than the exercise price of $20. This means that the call options are out-of-the-money and have no value to the holders. Therefore, Silver Ltd would need to write off the value of the options.

Here are the journal entries that Silver Ltd likely needs to record on 30th April 2022:

1. Debit (Decrease) Call Options Asset: This entry is to write off the value of the call options. The amount would be the initial cost of the options, which is $3 per option times 10,000 options, or $30,000.

2. Credit (Increase) Loss on Call Options: This entry is to recognise the loss from the call options. The amount would also be $30,000, which is the cost of the options that is now lost.

The journal entries would look like this:

- Debit Call Options Asset $30,000
- Credit Loss on Call Options $30,000

This records the fact that the call options are now worthless and Silver Ltd has incurred a loss of $30,000.

Question

On 30th April 2022, the share price of GoodPay Ltd was $18, which is less than the exercise price of $20. This means that the call options are out-of-the-money and have no value to the holders. Therefore, Silver Ltd would need to write off the value of the options.

Here are the journal entries that Silver Ltd likely needs to record on 30th April 2022:

1. Debit (Decrease) Call Options Asset: This entry is to write off the value of the call options. The amount would be the initial cost of the options, which is $3 per option times 10,000 options, or $30,000.

2. Credit (Increase) Loss on Call Options: This entry is to recognise the loss from the call options. The amount would also be $30,000, which is the cost of the options that is now lost.

The journal entries would look like this:

- Debit Call Options Asset $30,000
- Credit Loss on Call Options $30,000

This records the fact that the call options are now worthless and Silver Ltd has incurred a loss of $30,000.

Knowee AI · Accepted Answer

On 30th April 2022, the share price of GoodPay Ltd was $18, which is less than the exercise price of $20. This means that the call options are out-of-the-money and have no value to the holders. Therefore, Silver Ltd would need to write off the value of the options.

Here are the journal entries that Silver Ltd likely needs to record on 30th April 2022:

1. Debit (Decrease) Call Options Asset: This entry is to write off the value of the call options. The amount would be the initial cost of the options, which is $3 per option times 10,000 options, or $30,000.

2. Credit (Increase) Loss on Call Options: This entry is to recognise the loss from the call options. The amount would also be $30,000, which is the cost of the options that is now lost.

The journal entries would look like this:

- Debit Call Options Asset $30,000
- Credit Loss on Call Options $30,000

This records the fact that the call options are now worthless and Silver Ltd has incurred a loss of $30,000.

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