Question

ovio Entertainment Corporation, the maker of the Angry Birds mobile games, recently made its Initial Public Offering (IPO) on the Helsinki NASDAQ stock exchange. Rovio stock is not available through U.S. stock exchanges. Rovio’s headquarters is in Finland. It also has offices in the United States, Sweden, China, and the United Kingdom.

Rovio’s IPO in September 2017 resulted in gross proceeds to the company of 30 million euros (roughly $35 US million.)

Rovio has stated that it wants to use the IPO proceeds to acquire other game makers and to reward employees.

Fun facts about Rovio: Rovio’s games have been downloaded more than 3.7 billion times as of June 30, 2017. In the second quarter of 2017, there were, on average, 80 million active monthly users of Rovio games.

NOTE: For the purpose of this blog post only, ignore any underwriting, professional, or other fees normally associated with an IPO. These costs are usually significant, but would overly complicate this situation at the introductory accounting level.

Questions

1. Assume that Rovio received the proceeds from its IPO in cash. How would Rovio’s balance sheet be impacted by its IPO?
2. Would there be any impact on Rovio’s income statement in 2017 from this IPO? Explain.
3. What would be the impact on Rovio’s balance sheet if it used its cash to then purchase another game maker company as a long-term investment?

Answer 1

The answers are as follows,

1. Rovio received the proceeds of the IPO in cash, the impact on balance sheet wil be, the stockholders equity section of liabilities side will increase to the extent of cash received. And the cash and cash equivalents section of assets side will also increase by the same amount.
2. There won't be any impact on the income statement as a result of such IPO. Only the balance sheet would be impacted.
3. As already said in 1 above the liabilities section will have the same impact and also the assets side. But when the investment is made the balance in cash and cash equivalents section will decrease and the balance in long term investments section will increase.