Lynch Engineering Firm provided the following income statement for 2012 in its annual financial report:

1. The company declared and paid a dividend of $550,000 in 2011 but did not declare any dividends in 2012.2. 2011:(a) Thirty-five percent of the sales were on account.(b) The accounts receivable balance decreased by $2,980,000 from January 1 to December 31.(c) As of December 31, the company still owed $145,000 in wages and $67,000 on the supplies used during the year.3. 2012:(a) Seventy-five percent of the sales were on account.(b) The accounts receivable balance increased by $1,671,750 from January 1 to December 31.(c) As of December 31, the company still owed $25,000 in wages and $50,000 in advertising.(d) On January 1, 2011, the company had a balance of $13,245 in cash.4. The company had no write-offs or recoveries of accounts receivable during 2011 or 2012.Required(a) Prepare the operating section of the statement of cash flows for 2011 and 2012, using the direct method.(b) Assume that you are a member of the board of directors of the Lynch Engineering Firm. Several influential shareholders have called you and complained that the company generated more net income in 2012 than in 2011, yet chose not to declare a dividend in 2012. How would you explain the board's position on dividends in 2011 versus 2012?

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2012 2011 Sales Salary expense Advertising expense S5,967,000 S5,590,000 S2,025,000 755,000 S1,794,000 710,000 260,000 832,000 Bad debt expense Administrative expenses Janitorial expense 275,000 898,000 132,000 281,000 963,000 299,000 Supplies expense Depreciation expense Net income 4,993.000 S 597,000 5.329,000 978,000