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 negative. Include in your report a determination of operating cash flows of negative $5 million using the indirect method.