When Netscape Communications Corporation went public with an IPO, it issued stock at $28 per share. In its second year as a public company, Netscape (which later became a subsidiary of AOL Time Warner) announced a common stock issue in an ad in The Wall Street Journal:
6,440,000 Shares
NETSCAPE
Common Stock
Price $533⁄4 a share
If Netscape had sold all these shares at the offering price of $53.75, the net proceeds before issue costs would have been $346.15 million.
Shown below is a portion of the stockholders' equity section of the balance sheet adapted from Netscape's annual report, which was issued prior to this stock offering:
Stockholders' Equity
(In thousands)
Common Stock, $0.0001 par value, 200,000,000
Shares authorized; 81,063,158 shares issued
And outstanding ..................................................$...........8
Additional paid-in capital ....................................... 196,749
Accumulated deficit ............................................. (16,314)
1. Assume the net proceeds from the sale of 6,440,000 shares at $53.75 were $342.6 million after issue costs. Record the stock issuance on Netscape'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 your answer in 2, did Netscape have to increase its authorized shares to undertake this stock issue?
4. What amount per share did Netscape receive and how much did Netscape's underwriters receive to help in issuing the stock if investors paid $53.75 per share? What do underwriters do to earn their fee?