Harish Company was formed on January 1,20X1. The company’s accountant prepared the following income statement, statement of retained earnings, and balance sheet at the conclusion of the first full year of operations.

Mr. Harish desires for the company to declare and pay a dividend equivalent to the company’s net income for the year.

(a) Is the company currently able to declare and pay the dividend? Why or why not?

(b) Explain why net income can differ from cash provided by operations.

(c) In addition to operating activities, what other “categories” of business activity can generate or expend cash? Provide examples for each category.

(d) Prepare a statement of cash flows for Harish Company for the year ending December 31, 20X1.

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HARISH COMPANY Income Statement For the Year Ending December 31, 20X1 Revenues Services to customers $70,000 Expenses Wages Rent Net income $30,000 12,000 42,000 $28,000 HARISH COMPANY Statement of Retained Earnings For the Year Ending December 31, 20X1 Beginning retained earnings Plus: Net income $ 28,000 $28,000 Less: Dividends Ending retained earnings $28,000