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?