Issue $50,000 of common stock in exchange for cash to a friend who is interested

This is the first of four discussion questions you will have this semester worth 10 points
each. Your grade will be based on how well you address the issue based on the
information you read in the book and your own thoughts. I am not expecting really
lengthy answers. Limit your answers to one page..


Kat Keiser is the president and principal stockholder of Kat's Kupcakery, Inc. The business is applying for a
$100,000 bank loan for expansion. Keiser believes she is more likely to get approved for the loan if the busness's
balance sheet looks good. She is considering the following options for improving the owner's equity of the business
in order to obtain the loan:
1. Issue $50,000 of common stock in exchange for cash to a friend who is interested in investing in the
company. This would increase assets (cash) by $50,000 and increase owner's equity by $50,000.

OR
2. Transfer $50,000 of Keiser's personal land to the business and issue common stock to herself. After the loan
is obtained, Keiser will transfer the land back to herself and zero out the common stock. This would
temporarily increase assets (land) by $50,000 and increase owner's equity by $50,000.
Discuss the ethical issue in this case. Analyze the alternatives from an ethical and a business point of view.
Who are the stakeholders? What are the consequences? What would you do?