* Please answer the following question(s): After graduating near the top of her class, Jen Naegle was hired by the local office of a Big 4 CPA firm in her hometown. Two years later, impressed wit her technical skills and experience, Daily Electronics, a large regional consumer electronics chain, hired Jen as assistant controller. This was last week. Now Jen's initial excitement has turned to distress. The cause of Jen's distress is the set of financial statements she's stared at for the last four hours. For some time prior to her recruitment, she had beer aware of the long trend of moderate profitability of her new employer. The reports on her desk confirm the slight, but steady, improvements in net income in recent years. The trend she was just now becoming aware of, though, was the decline in cash flows from operations. Jenhad sketched out the following comparison ($ in millions): 202 202 202 0 201 9 201 8 1 1 1 1 3 2 2 4 $ 0 Income from operations $ 2 $ 7 $ $ 7 0 0 5 O 3 3 2 in w 8 4 9 Net income . 5 0 5 1 1 1 1 7 2 5 LUPIUS 400 Net income . 5 O 5 5 1 1 1 7 2 5 Cash flow from operations - 6 0 Profits? Yes. Increasing profits? Yes. The cause of his distress? The ominous trend in cash flow which is consistently lower than net income. Upon closer review, Jen noticed three events in the last two years that, unfortunately, seemed related: a. Daily's credit policy had been loosened; credit terms were relaxed and payment periods were lengthened. b. Accounts receivable balances had increased dramatically. c. Several of the company's compensation arrangements, including that of the controller and the company president, were based on reported net income. Required: 1. What is so ominous about the combination of events Jen sees? Why? 2. What course of action, if any, should Jen take? Why