(Derivative T ransaction) On January 2, 2014, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2014 (the intrinsic value is therefore $0). On March 31, 2014, the market price for Merchant stock is $53 per share, and the time value of the option is $200.

Instructions

^{(a) P r epa r e the journal entry to r eco r d the pu r chase of the call option on January 2, 2014.}

^{(b) P r epa r e the journal entry(ies) to r ecognize the change in the fair value of the call option as of}

^{Ma r ch 31, 2014.}

^{(c ) Wha t wa s th e e f fec t o n ne t incom e o f enterin g int o th e derivativ e transactio n fo r th e perio d Januar y 2}

^{to Ma r ch 31, 2014?}