How does Birchbox report its issuance of $50 million in equity?

Birchbox, Inc., is privately-held. It was founded in 2010 by Hayley Barna and Katia Beauchamp and has its headquarters in New York City.  Birchbox offers a subscription service that delivers samples of beauty products to its subscribers. Subscribers can also purchase full-size versions of the products on Birchbox’s website. Birchbox currently has more than 400,000 subscribers and continues to grow, both through new promotions and acquisitions.

Recently, it was reported that Birchbox is going to issue $50 million in equity to private investors.  Birchbox needs the cash to allow it to continue to grow.

Questions

  1. Assume that Birchbox issues $50 million of stock in exchange for $50 million of cash. Assume further that Birchbox stock has a $0.01 par value and that 500,000 shares are issued.  What will the journal entry be to record the stock issuance?
  2. Will the $50 million of stock appear on the balance sheet or the income statement for Birchbox? In what section?
  3. Will Birchbox pay interest on the stock? Why or why not?
  4. Is Birchbox required to pay dividends on the stock?  Why or why not?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below.  Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.  The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)
  • YouTube video (narrated article in shareable YouTube link)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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