Note: This case is based on an actual situation.
Stan Sewell paid $50000 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 $500000 Sewell sought to capitalize his own franchise at $500000. The law firm of St. Charles & LaDue helped Sewell form a corporation chartered to issue 500000 shares of common stock with par value of $1 per share. Attorneys suggested the following chain of transactions:
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 $500000. This balance sheet is Sewell’s most valuable marketing tool.
Requirements
Instructions:Your initial response should be no less than 250 words.