What is the impact on Snapchat’s balance sheet from its latest issuance of stock?

Source: Wendy TietzSnapchat is one of the fastest growing social media platforms with 16 to 24 year olds. Snapchat is privately-held, which means its stock cannot be purchased on a stock exchange. It may be getting ready for an IPO (initial public offering) sometime later in 2016 or 2017. In the meantime, Snapchat is obtaining funding for operations and growth by issuing stock to private investors.

On May 26, 2016, Snapchat Inc., filed a form with the SEC notifying it that it would be issuing additional stock to private investors.

Questions

  1. Assume that Snapchat issues $10 million of no-par stock to private investors in exchange for cash. What would be the journal entry?
  2. What would be the impact on Snapchat’s assets, liabilities, and equity of this hypothetical issuance of $10 million no-par stock in exchange for cash?
  3. At this point, why might Snapchat be choosing equity funding (stock issuance) rather than debt financing?

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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