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Question
On December 1, 2011 a company bought a call option costing $100,000 as a speculative investment. The call option gave the company the right to purchase 100,000 barrels of oil for $110 per barrel during April 2012. As of December 31, 2011 the call option had a value of $125,000. The company liquidated the call option on April 15, 2012 in exchange for $175,000. Which of the following accurately describes GAAP accounting for this call option?
A. The realized gain applicable to the year ending December 31, 2011 is $25,000.
B. The realized gain recognized on April 15, 2012 is $75,000.
C. The unrealized gain recognized on April 15, 2012 is $50,000.
D. The call option will be reported on the December 31, 2011 balance sheet at $125,000 and a $25,000 unrealized gain will be reported as a component of income from continuing operations for the year ending December 31, 2011.
Answer
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