When Google, Inc., went public with an IPO, it used an auction system that allowed everyone to participate rather than allocating shares of stock to a few insiders. The com- pany's IPO drew widespread attention. Announcements of the IPO would have been similar to the following:
22,500,000 Shares GOOGLE, INC.
$0.001 Par Value Common Stock Price $85 a share
The gross proceeds of the IPO before issue costs were $1.9 billion.
A portion of the stockholders' equity section of the balance sheet adapted from Google's annual report, which was issued prior to this stock offering, follows.
Stockholders' Equity (Dollar amounts in thousands)
Common stock, $0.001 par value, 700,000,000 shares
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authorized; 161,000,000 shares issued and outstanding
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$ 161
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Additional paid-in capital
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725,219
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Retained earnings
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191,352
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1. Assume that the net proceeds to Google after issue costs were $1.8 billion. Prepare the journal entry to record the stock issuance on Google's accounting.
2. Prepare the stockholders' equity section portion of Google's balance sheet shown above after the issue of the common stock, based on the information given. (Round all answers to the nearest thousand.)
3. Based on your answer in 2, did Google have to increase its authorized shares to undertake this stock issue?
4. What amount per share did Google receive and how much did Google's underwrit- ers receive to help in issuing the stock? What do underwriters do to earn their fee?