Week 1 Discussion Question

Ethical Issue 12-1

Note: This case is based on an actual situation. 

Stan Sewell paid $50,000 to have a business which allowed him to market software applications in the countries of the European Union. Sewell planned to sell individual companies for the main language groups of Western Europe-German, French, English, Spanish, as well as Italian. Obviously, investors thinking about buying a company from Sewell asked to see the financial statements of his organization.

Supposing the price of the company to be $500,000, Sewell wanted to capitalize his own company at $500,000. The law company of St. Charles & LaDue assisted Sewell create a corporation chartered to issue 500,000 shares of common share with par value of $1 for each share. Lawyers recommended the following series of dealings:

1. Sewell's      relative, Bob, borrows $500,000 from a bank and buys the company from      Sewell.
2. Sewell      pays the corporation $500,000 to get all its shares.
3. The      corporation purchases the company from Cousin Bob.
4. Cousin      Bob repays the $500,000 loan to the bank.

In the bottom line, Cousin Bob is debt-free and away from the picture. Sewell has all the corporation's shares, and the corporation has the franchise. The corporation's balance sheet lists a franchise purchased for $500,000. This balance sheet is Sewell's most effective marketing strategy.

Requirements

1. What      is unethical about this situation?
2. Who      can be harmed? How can they be harmed? What role does accounting play?