Max Is the Sole Shareholder of Smart Corporation

question 64

Essay

Max is the sole shareholder of Smart Corporation.He started the internet company five years ago and has been working hard to turn a profit.Predicting that Smart will to be very profitable next year,Max had Smart borrow $250,000 to pay him the salary he rightly deserves.At the end of the current year,Smart has total assets of $400,000 and liabilities of $350,000.Max's basis in his stock is $200,000.Next year,Smart does become profitable and Max is approached by Buyall Corporation,a competitor,to sell Smart.Rather than a sale,Max suggests a merger in which he receives stock in Buyall in the amount of $700,000 plus $50,000 cash for all the assets and liabilities associated with the assets ($150,000).Buyall counters with an offer of $650,000 in Buyall stock for all of the assets and the $250,000 salary liability.Should Max take Buyall's offer or insist on what he wants?

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Definitions:

Fixed Supply

A situation where the quantity of a good or resource available does not change in response to its price.

Fish

Aquatic animals that are typically harvested either from the wild (fishing) or from farms (aquaculture) for food, recreational, or commercial purposes.

Open Ocean

The vast, deep, and relatively unexplored parts of the sea, far from land and typically beyond national jurisdiction.

Property Rights

The legal rights to use, transfer, or sell property, whether tangible or intangible, recognized and protected by law.