Reference no: EM132051277

Problem - Corporate Shenanigans

Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries o the European Union. Sewell intended to sell individual franchises for the major language groups of Western Europe - German, French, English, Spanish, and Italian. Naturally, investors considering buying a franchise from Sewell asked to see the financial statements of his business.

Believing the value of the franchise to be $500,000, Sewell sought to capitalize his own franchise at $500,000. The law firm of St. Charles & LaDue helped Sewell form a corporation chartered to issue 500,000 shares of common stock with par value of $1 per share. Attorneys suggested the following chain of transactions:

1. Sewell's cousin, Bob, borrows $500,000 from a bank and purchases the franchise from Sewell.

2. Sewell pays the corporation $500,000 to acquire all its stock.

3. The corporation buys the franchise from Cousin Bob.

4. Cousin Bob repays the $500,000 loan to the bank.

If the final analysis, Cousin Bob is debt-free and out of the picture. Sewell owns all of the corporation's stock, and the corporation owns the franchise. The corporation's balance sheet lists a franchise acquired at a cost of $500,000. This balance sheet is Sewell's most valuable marketing tool.

Requirements -

1. What is unethical about this situation?

2. Who can be harmed? How can they be harmed? What role does accounting play?

Responses must be in APA format and contain a minimum of two scholarly journal references. Websites such as Investopedia, ask.com, answers.com, or dictionary-type of websites are not allowed.

Must be a minimum of 275 words but no more than 500.