St. John's University
Tobin College of Business
Department of Accounting and Taxation
Accounting 632 – Critique of Accounting Theory
Wolk et al. (2008), Chapter 11, p. 369, question 6.
Required: 1-2 pages formatted as follows:
· typed in New Times Roman font style, 12-point font size
· one-inch margins.
The CFO of MCI Co. has read on the Internet that the stock price of Wawel Inc. is about to increase. In order to profit from this investing opportunity, MCI Co. purchased a call option on Wawel common shares on June 30, 2011, for $360. The call option is for 300 shares (notional value) and the strike price is $105. (The market price of a share of Wawel stock on that date is $105). The option expires on January 31, 2012. The following data are available with respect to the call option:
September 30, 2011 $115 per share $270
December 31, 2011 112 per share 97
Prepare the journal entries for MCI Co. for the following dates:
(a) June 30, 2011 - Investment in call option on Wawel shares (7.5 points)
(b) September 30, 2011 – MCI prepares financial statements (7.5 points)
(c) December 31, 2011 – MCI prepares financial statements (7.5 points)
(d) January 20, 2012 – MCI settles the call option on the Wawel shares (7.5 points)
Question 3 (30 points)
Your client, the NGD Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the stock of one of its suppliers, Empire Co. Empire’s shares trade on the over-the-counter market. The NGD plans to classify these investments as available-for-sale. They would like you to conduct some research on the accounting for these investments.
Use the FASB Codification Research System to answer the four questions posted below. Copy and paste relevant paragraph(s) from the FASB Codification. Provide Codification references for your responses.