When Google, Inc. Went public with an IPO, it used an auction system that allowed everyone to participate rather than allocation shares of stock to a few insiders.17 The company’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.

Show below is 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:

Stockholders’ Equity

(Dollar amounts in Thousands)

Common stock, $0.001 par value, 700,000,000 shares

Authorized; 161,000,000 shares issued and outstanding . $ 161

Additional paid-in capital ............. 725,219

Retained earnings ................ 191,352

1. Assume that the net proceeds to Google after issue costs were $ 1.8 billion. Record the stock issuance on Google’s accounting records in Journal form.

2. Prepare the portion of the stockholders’ equity section of the 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 yours 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 underwriters receive to help in issuing the stock? What do underwriters do to earn their fee?