"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 (DO NOT USE EXCEL)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) $65 (35) Net sales Cost of goods sold Depreciation expense Operating expenses Net income (4) (21) $ 5 POLAR OPPOSITES Balance Sheet December 31, 2018 ($ in millions) Cash $1 16 Accounts receivable (net) Merchandise inventory Machinery (net) 14 44 Total assets $75 $7 29 Accounts payable Accrued expenses payable Notes payable Common stock Retained earnings Total liabilities and stockholders' equity 25 $75