Reference no: EM13527267

The stockholders' meeting for Harris Corporation has been in progress for some time. The chief financial officer for Harris is presently reviewing the company's financial statements and is explaining the items that comprise the stockholders' equity section of the balance sheet for the current year.

HARRIS CORPORATION

Balance Sheet (partial)

December 31, 2011

Paid in capital
Capital stock
Preferred stock, authorized 1,000,000 shares
cumulative, $100 par value, $8 per share, 6,000
shares issued and outstanding		$ 600,000
Common stock, authorized 5,000,000 shares, $1 par
value, 3,000,000 shares issued, and 2,700,000
outstanding		3,000,000
Total capital stock		3,600,000
Additional paid-in capital
In excess of par value-preferred stock	$ 50,000
In excess of par value-common stock	25,000,000
Total additional paid-in capital		25,050,000
Total paid-in capital		28,650,000
Retained earnings		900,000
Total paid-in capital and retained earnings		29,550,000
Less: Common treasury stock (300,000 shares)		9,300,000
Total stockholders' equity		$20,250,000

At the meeting, stockholders have raised a number of questions regarding the stockholders' equity section.

Instructions

With the class divided into groups, answer the following questions as if you were the chief financial officer for Harris Corporation.

(a) "What does the cumulative provision related to the preferred stock mean?"

(b) "I thought the common stock was presently selling at $29.75, but the company has the stock stated at $1 per share. How can that be?"

(c) "Why is the company buying back its common stock? Furthermore, the treasury stock has a debit balance because it is subtracted from stockholders' equity .Why is treasury stock not reported as an asset if it has a debit balance?"

(d) Why is it necessary to show additional paid-in capital? Why not just show common stock at the total amount paid in?"