Question

Director X of the ABC Corporation,listed on the NYSE,has engaged in the following transactions in ABC's stock:

January 1, 2017 -purchased 300 shares of ABC stock for $30 per share
January 15, 2017- sold 300 shares of ABC stock for $35 per share
January 30, 2017 -purchased 300 shares of ABC stock for $25
February 3, 2017 -sold 300 shares of ABC stock for $20
1. Which of the following is correct?
​A)​The director has a net loss so there are no short-swing profits.
B)​The director has a net gain of $15 x 300 shares or $4,500.
C)The director is not subject to the restrictions on short-swing profits.
D)none of the above

Answer 1

The correct option is C,the director is not subject to the restrictions on short-swing profits.

Step-by-step explanation:

The short-swing profit rules apply to company's insiders such the directors who have access to sensitive share price information of the company.

The rules mandated that such insiders return to the company any profit made in dealing in the shares of the company if both purchase and sale of shares occur within six months.

However, the director in question is not subject to short-swing profits since the profits of $1,500 made on January 15($35-$30) *300) was cancelled out by the loss of -$1,500 made on February 3 ($20-$25)*300).