On January 3, Turkey Ltd. purchases a call option for $200 from PeacockCorp. to buy 1,000 Quail Inc. shares at an exercise price of $42 per share.The option expires May 1. At this time the current market price of Quailshares is also $42.
On March 31 (Turkey's year end), the market value of the Quail shares is$53, and the fair value of the option has increased to $14,000.On April 15, Turkey takes delivery of (buys) the Quail shares as agreed inthe option contract. The market value of Quail's shares is now $54.Instructions (show any calculations)
a. Calculate the intrinsic value and the time value of this option at
1. January 3
2 March 31
b. Prepare general journal entries
1. January 3
2. March 31
3. April 15