Why can't we pay our shareholders a dividend?" shouts your new boss at Polar Opposites. "This income statement you prepared for me says we earned $5 million in our first year!" You recently prepared the financial statements below. POLAR OPPOSITES Income Statement For the year ended December 31, 2018 ($ in millions) Net sales $65 Cost of goods sold (35) Depreciation expense (4) Operating expenses (21) Net income $ 5 POLAR OPPOSITES Balance Sheet December 31, 2018 ($ in millions) Cash $1 Accounts receivable (net) 16 Merchandise inventory 14 Machinery (net) 44 Total assets $75 Accounts payable $7 Accrued expenses payable 9 Notes payable 29 Common stock 25 Retained earnings 5 Total liabilities and stockholders' equity $75 Although net income was $5 million, cash flow from operating activities was a negative $5 million. This just didn't make any sense to your boss. Required: Prepare a memo explaining how net income could be positive and operating cash flows is negative. Include in your report the calculation of operating cash flows of negative $5 million using the indirect method
Why can't we pay our shareholders a dividend?" shouts your new boss at Polar Opposites. "This income statement you prepared for me says we earned $5 million in our first year!" You recently prepared the financial statements below. POLAR OPPOSITES Income Statement For the year ended December 31, 2018 ($ in millions) Net sales $65 Cost of goods sold (35) Depreciation expense (4) Operating expenses (21) Net income $ 5 POLAR OPPOSITES Balance Sheet December 31, 2018 ($ in millions) Cash $1
![](/static/compass_v2/shared-icons/check-mark.png)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)