How will Brooklinen, the luxury bedsheets startup, account for its $10 million Series A stock issuance?

Source: https://www.brooklinen.com/

Vicki and Rich Fulop, a millennial couple from Brooklyn, New York, went on vacation and stayed in a hotel where they fell in love with the bedsheets. When the Fulops made inquiries about how they might purchase the bedsheets, they found out that those sheets were not available for sale by retail customers.  Similar sheets in retail establishments would cost over $800.

The Fulops then launched an intensive research effort, learning everything they could about bedsheets and the market. They cofounded Brooklinen, a luxury bedsheets startup that makes luxury sheets affordable by eliminating the middleman. All Brooklinen sheets are sold online in a direct-to-consumer business model. Brooklinen sheets have a high threadcount and are made with long-staple cotton, which gives them a softness not found in traditional retail bedsheets. Brooklinen bedsheet sets start at less than $100.

Brooklinen started in 2014, initially financed through a Kickstarter campaign. It has grown ten times each year since inception. Revenues in 2016 hit $25 million. Brooklinen is now at the point where it needs outside financing to expand and develop new products in addition to its current offerings of sheets, pillows, candles, and duvet covers.

In March 2017, Brooklinen obtained outside funding through its $10 million Series A round. Typically, Series A round is a company’s first significant external funding. Series A is usually preferred stock issued to venture capital investors. Series A preferred stock is often convertible into common stock at a later date.

Questions

1. Ignore any underwriting fees. What journal entry would Brooklinen make on the date of its $10 million stock issuance?
2. How are assets, liabilities, and equity impacted by the stock issuance?
3. Why might Brooklinen choose to issue stock instead of obtaining a loan?

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)

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