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.


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



Total capital stock


Additional paid-in capital

In excess of par value-preferred stock

$ 50,000

In excess of par value-common stock


Total additional paid-in capital


Total paid-in capital


Retained earnings


Total paid-in capital and retained earnings


Less: Common treasury stock (300,000 shares)


Total stockholders' equity


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


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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