Sean, a Sole Proprietor, Is Engaged in a Service Business

question 40

Essay

Sean, a sole proprietor, is engaged in a service business and uses the cash basis of accounting. In the current year, Sean incorporates his business by forming Aqua Corporation. In exchange for all of its stock, Aqua receives: assets (basis of $400,000 and fair market value of $2 million), trade accounts payable of $110,000, and loan due to a bank of $390,000. The proceeds from the bank loan were used by Sean to provide operating funds for the business. Aqua Corporation assumes all of the liabilities transferred to it.

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Definitions:

Enterprise Managers

Individuals responsible for planning, directing, and overseeing the operations and fiscal health of a business unit, division, department, or an operating unit within an organization.

Innovation

The introduction of new products, ideas, or processes that improve methods or bring novel solutions to the market.

Soviet Union

A former socialist state in eastern Europe and northern Asia, existing from 1922 to 1991.

Invisible Hand

A term coined by Adam Smith to describe the self-regulating behavior of the marketplace, where individual self-interests inadvertently contribute to the economy's overall health.