What is the impact on Snapchat\'s balance sheet from its latest issuance of stoc

Question

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

Explanation / Answer

Note: It has been assumed thet $10 million is the par value of stock. Since the stock is "No-Par", so i am dividing the entry into two possible cases, where in one can be "when stock is issued at premium" and other can be "when stock is issued at discount"

1. (a) If stock is Issued at Premium amounting to $X

Debit Cash Received $10mn + $X

Credit Stock $10 mn

Credit Premium $X

(b) If stock is Issued at Discount amounting to $Y

Debit Cash Received $10mn - $Y

Debit Discount $Y

Credit Stock $10mn

2. (a) If stock issued at premium

Assets will increase by cash of $10mn + $X

Equity will increase by stock of $10 mn

Equity will increase by premium of $X

(b) If stock issued at discount

Assets will increase by cash of $10mn - $Y

Assets will increase by Discount of $Y

Equity will increase by stock of $10 mn

3. Snapchat would choose equity funding because of the following reasons:-

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