Business, 13.03.2020 00:10 rafamoreura

On December 1 of the current year, Bann Co. entered into an option contract to purchase 2,000 shares of Norta Co. stock for $40 per share (the same as the current market price) by the end of the next two months. The time value of the option contract is $600. At the end of December, Norta’s stock was selling for $43, and the time value of the option is now $400. If Bann does not exercise its option until January of the subsequent year, which of the following changes would reflect the proper accounting treatment for this transaction on Bann’s December 31 year-end financial statements?

a. Net income will increase by $5,800.
b. Current assets will decrease by $200.
c. The option value will be disclosed in the footnotes only.
d. Other comprehensive income will increase by $6,000.

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