Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union

Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of 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:

a. Sewell's cousin, Bob, borrows $500,000 from a bank and purchases the franchise from Sewell.
b. Sewell pays the corporation $500,000 to acquire all its stock.
c. The corporation buys the franchise from Cousin Bob.
d. 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 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.

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


Click here for the solution: Stan Sewell paid $50,000 for a franchise that entitled him to market software programs in the countries of the European Union

Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled

Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled to claim on their 2010 income tax returns.

Number of Exemptions
a. Donna, a 20-year-old single taxpayer, supports her mother, who lives in her own home. Her mother has income of $1,350. ___________________
b. William, age 43, and Mary, age 45, are married and support William’s 19-year-old sister, who is not a student. The sister’s income from a part-time job is $3,500. ___________________
c. Devi was divorced in 2010 and receives child support of $250 per month from her ex-husband for the support of their 8-year-old son, John, who lives with her. Devi is 45 and provides more than half of her son’s support. ___________________
d. Wendell, an 89-year-old single taxpayer, supports his son, who is 67 years old and earns no income. ___________________
e. Wilma, age 65, and Morris, age 66, are married. They file a joint return.


Click here for the solution: Indicate, in each of the following situations, the number of exemptions the taxpayers are entitled