BYP12-4 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.

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

If you were the chief financial officer for Harris Corporation:

(a)    “What does 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?”

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……………………………………………..    36,000,000

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