Answered: AUAF is attempting to hold Kabul, Inc.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Kabul Inc. wished to buy a company that produced and sold burglar alarms. Accordingly, Kabul formed a Alarmaway Inc., for the sole purpose of buying and operating the business. Kabul contributed $2 million in cash to Alarmaway and held 100% of its stock. After several profitable months, sales began to fall until its total assets dwindled to only $10,000. Alarmaway finally ceased doing business altogether, although it owed its largest creditor, AUAF, Inc. $400,000. AUAF is attempting to hold Kabul, Inc. liable for this debt. Should the court pierce the corporate veil and hold Kabul liable for Alarmaway’s debt?

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