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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 $5 million in our first yearl" You recently prepared the financial statements below. POLAR OPPOSITES Income Statement For the year ended December 31, 2018 ($ in 5/11 Net sales 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 16 14 44 Accounts receivable (net) Merchandise inventory Machinery (net) Total assets Accounts payable Accrued expenses payable Notes payable $75 $7 9 29 | Common stock 25 -5 Retained earnings 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

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