Focus on ethics(Note: This case is based on an actual situation.)Stan Sewell paid $50000 for a franchise that entitled him to market software programs in thecountries of the European Union. Sewell intended to sell individual franchises for the majorlanguage groups of Western Europe-German, French, English, Spanish and Italian. Naturally,investors considering buying a franchise from Sewell asked to see the financial statements ofhis business.Believing the value of the franchise to be $500000, Sewell sought to capitalise hisown franchise at $500000. The law firm of St Charles & LaDue helped Sewell form acompany empowered to issue 500000 ordinary shares. Solicitors suggested the followingchain of transactions:1 Sewell's cousin, Bob, borrows $500000 from a bank and purchases the franchise from Sewell.2 Sewell pays the company $500 000 to acquire all its shares.3 The company buys the franchise from cousin Bob.4 Cousin Bob repays the $500 000 loan to the bank.In the final analysis, cousin Bob is debt-free and out of the picture. Sewell owns all the company'sshares, and the company owns the franchise. The company's balance sheet lists a franchise acquiredat a cost of $500000. This balance sheet is Sewell's most valuable marketing tool.Requirements1 What is unethical about this situation?2 Who can be harmed? How can they be harmed? What role does accounting play?

1 The capitalization of the franchise's market worth is immoral in this case. Even though the value…

Note: This case is based on an actual situation.) tan Sewell paid $50 000 for a franchise that entitled him to market softwa ountries of the European Union. Sewell intended to sell individual franc anguage groups of Western Europe-German, French, English, Spanish an hvestors considering buying a franchise from Sewell asked to see the fina nis business. Believing the value of the franchise to be $500000, Sewell sough own franchise at $500000. The law firm of St Charles & LaDue help ompany empowered to issue 500000 ordinary shares. Solicitors sugges hain of transactions:

Note: This case is based on an actual situation.) tan Sewell paid $50 000 for a franchise that entitled him to market softwa ountries of the European Union. Sewell intended to sell individual franc anguage groups of Western Europe-German, French, English, Spanish an hvestors considering buying a franchise from Sewell asked to see the fina nis business. Believing the value of the franchise to be $500000, Sewell sough own franchise at $500000. The law firm of St Charles & LaDue help ompany empowered to issue 500000 ordinary shares. Solicitors sugges hain of transactions:

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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