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Page 5 of 11 Question 2 "Why can't we pay our shareholders a dividend?" shouts...

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Accounting

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Page 5 of 11 Question 2 "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 Sin millions Net sales 565 (35) Cost of goods sold Depreciation expense (4) (21) Operating expenses Net income 5 POLAR OPPOSITES Balance Sheet December 31, 2018 is in millions Cash $1 16 $75 Accounts receivable (net) Merchandise inventory Machinery (net) Total assets Accounts payable Accrued expenses payable Notes payable Common stock $7 9 29 25 Retained earnings Total liabilities and stockholders' equity S25 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

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