What is the balance sheet impact of the $400 million Netflix just borrowed?

In February 2014, Netflix took out a $400 million loan.  Netflix is using these funds to help to create original programming, such as its hit series “House of Cards,” and to expand to Europe.

Netflix is a publicly-held company trading on NASDAQ under the symbol NFLX. On March 10, 2014, Netflix common stock was selling for about $438.38 per share. As of December 31, 2012, Netflix had more than 55,587,000 shares of common stock outstanding.

Questions

1. What is the impact on Netflix’s accounting equation from borrowing the $400 million?
2. Rather than borrowing the $400 million, Netflix could have issued common stock. Using the market price given in the article, how many shares of common stock would Netflix had to have issued to realize $400 million (ignore underwriting and broker fees)?
3. What are some possible reasons that Netflix chose to borrow the $400 million rather than issue stock?

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)

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