A newbie Q - Buying back liability at a discount

[Buddha Buck]

On Tue, May 10, 2016 at 4:33 PM Suresh Bazaj <suresh at bazaj.org> wrote:

> Hello,
> 1.     At the beginning of year, there is a $1,500 Liability entry for a
> PUT
> sold for $1,500 in prior year. There is a corresponding entry for $1,500 in
> the Checking account where the $1,500 was deposited.
>
>
>
> 2.     I bought back the PUT for $200 in March, thereby getting rid of the
> Liability for a net profit of $1,300 (ST Capital Gain).
>
>
>
> 3.     I enter the $200 in the Checking account as a decrease. What do I
> enter in the Transfer column, such that the Liability is zeroed and the
> $1,300 shows up as ST Capital Gain income?
>

I am unfamiliar with the mechanics of buying and selling options. I trust
your explanation of what your CPA says is accurate, and am answering as if
it were.


> Is this an example of some type of split Transaction?
>

Yes. You would (using traditional accounting labels) credit Checking by
$200, credit ST Capital Gain income by $1300, and debit the Liability by
$1500. This would be done as a split transaction.



>
>
>
> Thanks,
>
>
>
> Suresh
>
>
>
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