Question

In an IPO on May 1, 2012, Timmy Hilfigure purchased 1,000 shares of Abner Crummie, Inc. for $5,000. On April 30, 2018, Timmy Hilfigure sold the 1,000 shares for $8,000 to Ralph Loring. What is the effect of the sale on April 30, 2018?

Multiple Choice

A) Abner Crummie, Inc. will record a $3,000 loss.

B) Abner Crummie, Inc. will record a $3,000 gain.

C) Abner Crummie, Inc. will not be directly affected by this transaction.

D) Abner Crummie, Inc. will record a decrease in Cash of $8,000.

Answer 1

The sale of the shares by Timmy Hilfiger to Ralph Loring will not directly affect Abner Crummie, Inc., since it is a secondary market transaction that does not involve the issuing company.

Step-by-step explanation:

When Timmy Hilfiger sold his 1,000 shares of Abner Crummie, Inc. for $8,000 on April 30, 2018, after initially purchasing them for $5,000, Abner Crummie, Inc. as a company will not be directly affected by this sale. The transaction here is between two individual investors, and it takes place in the secondary market, which does not involve the company that originally issued the shares.