Why cant we pay our shareholders a dividend? shouted your new boss. This income statement you prepared for me says we earned $5 million in our first half-year!

You were hired last month as the chief accountant for Enigma Corporation, which was organized on July 1 of the year just ended. You recently prepared the financial statements below.

ENIGMA CORPORATION
Income Statement
For the Six Months Ended December 31, 2024
($ in millions)
Sales revenue	$75
Cost of goods sold	(30)
Depreciation expense	(5)
Remaining expenses	(35)
Net income	$5

ENIGMA CORPORATION
Balance Sheet
December 31, 2024
($ in millions)
Cash	$1
Accounts receivable (net)	20
Merchandise inventory	15
Equipment (net)	44
Total	$80
Accounts payable	$2
Accrued liabilities	7
Notes payable	36
Common stock	30
Retained earnings	5
Total	$80

You just explained to your boss, Robert James, that although net income was $5 million, operating activities produced a net decrease in cash. Unable to understand your verbal explanation, he asked you to prepare a written report explaining the apparent discrepancy between Enigmas profitability and its cash flows. To increase the chances of your bosss understanding the situation, you want to include in your report a determination of net cash flows from operating activities demonstrating how it is possible for operating activities to simultaneously produce a positive net income and negative net cash flows.