Purchase Solution

Cumulative provision related to the preferred stock mean

Not what you're looking for?

Ask Custom Question

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. The stockholders' equity section of Harris Corporation at December 31, 2008, is shown on page 590.

Harris Corporation
Balance Sheet (partial)
December 31, 2008
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?"

Purchase this Solution

Solution Summary

The cumulative provisions related to the preferred stock mean is examined.

Solution Preview

ANSWERS

Question A
The cumulative provision related to the preferred stock means that whenever the Board of Directors of Harris Corporation does not declare dividends for either preferred or common shares or both, the company is obligated to pay the preferred stockholders the amount of dividends that were not declared. Say, the company did not declare dividends for the past two years and have declared that dividends be paid this year, then the amount of ...

Purchase this Solution


Free BrainMass Quizzes
Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.