Question

1. GonnaBeBig (GBB) went through a round of fundraising and raised $1 million from investors by selling them 1 million shares at $1 each.
   1. How will this affect GonnaBeBig’s income statement? How will this affect GonnaBeBig’s balance sheet?

1. b . Suppose GBB had raised the money by selling convertible notes (convertible debt).  How would this change the effect on GBB’s balance sheet?

Answer 1

Effects on GonnaBeBigs Financial Statements on account of Share issue:-

Journal Entry:-

Bank A/c (actual amount received)   Dr. $1,000,000
To Share Capital A/c $1,000,000

a. As per the effects shown above, there will be no impact of fundraising on the income statement. There will be an impact on the companies Balance Sheet ie. Cash/ Bill increase by $1 Million and correspondingly Equity Share capital will increase by $1 Million.

If GBB had raised the money by selling convertible notes (convertible debt)

Journal Entry:-

Bank A/c (actual amount received)   Dr. $1,000,000
To Convertible Debt A/c $1,000,000

b. As per the effects shown above, the companies Balance Sheet ie. Cash/ Bill increase by $1 Million and correspondingly its debts, (Convertibke Notes) will increase by $1 Million.