Shabby Fitch is the president and principal stockholder of Shabbys Bar & Grill, Inc. To expand, the

Question:

Shabby Fitch is the president and principal stockholder of Shabby’s Bar & Grill, Inc. To expand, the business is applying for a $350,000 bank loan. To get the loan, Fitch is considering two options for beefing up the stockholders’ equity of the business:

Option 1. Issue $200,000 of common stock for cash. A friend has wanted to invest in the company. This may be the right time to extend the offer.

Option 2. Transfer $200,000 of Fitch’s personal land to the business, and issue common stock to Fitch. Then, after obtaining the loan, Fitch can transfer the land back to himself, and the balance in the common stock account will then equal $0.

Requirements

Use the ethical decision model in Chapter 1 to answer the following questions:

1. What is the ethical issue?

2. Who are the stakeholders? What are the possible consequences to each?

3. Analyze the alternatives from the following standpoints: (a) economic, (b) legal, and (c) ethical.

4. What would you do? How would you justify your decision? How would your decision make you feel afterward?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,...

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