Cumulative provision related to the preferred stock mean

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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?"

Reference no: EM13527267

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