How would Reverb, the online marketplace for musicians, record its issuance of $25 million of stock?

Started in 2013, Reverb is a company that provides an online marketplace for musicians to buy and sell gear. Its investors include country music superstar Brad Paisley and Rick Nielsen of Cheap Trick.

Reverb can be thought of as the “Ebay for musicians.” The wide scope of the Ebay marketplace makes it hard at times to locate or sell specific musician gear.  For example, a search for “Fender Mustang” on Ebay may turn up car parts or a guitar.  Reverb is focused solely on musicians, so search results are likely relevant.

Reverb is growing rapidly.  It issued $25 million in stock in late 2015 to help to finance its growth.

Questions

  1. Why might Reverb choose to use equity funding rather than debt financing?
  2. Assuming the entire $25 million was issued in one transaction, would journal entry would Reverb make to record the stock issuance in 2015?

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.

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)

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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