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.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter12: Fainancial Statement Analysis
Section: Chapter Questions
Problem 59BE
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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.
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