Question: "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. 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.
Question: "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. 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.
Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter4: Analysis Of Financial Statements
Section: Chapter Questions
Problem 24P: Income Statement for Year Ended December 31, 2018 (Millions of Dollars) Net sales 795.0 Cost of...
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Question:
"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.
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 $5 million using the indirect method.
![POLAR OPPOSITES
Income Statement
For the year ended December 31, 2018
($ 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
Total liabilities and stockholders' equity
$75](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F19668812-0331-4acd-92de-3ced7b4558b1%2F101373a5-dcca-44e5-be0e-8d4984a1c335%2Fv5rmyr_processed.png&w=3840&q=75)
Transcribed Image Text:POLAR OPPOSITES
Income Statement
For the year ended December 31, 2018
($ 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
Total liabilities and stockholders' equity
$75
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