Lynch Engineering Firm provided the following income statement for 2018 in its annual financial report:1. The company declared and paid a dividend of $550,000 in 2017 but did not declare any dividends in 2018.
2. 2017:
(a) 35 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. 2018:
(a) 75 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 salaries and wages and $50,000 in advertising.
(d) On January 1, 2017, the company had a balance of $13,245 in cash.
4. The company had no write-offs or recoveries of accounts receivable during 2017 or 2018.

REQUIRED:
a. Prepare the operating section of the statement of cash flows for 2017 and 2018, 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 2018 than in 2017, yet chose not to declare a dividend in 2018. How would you explain the board€™s position on dividends in 2017 versus 2018?

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2017 2018 Sales $5,967,000 $5,590,000 Salaries and wages expense $2,025,000 $1,794,000 Advertising expense Bad debt expense Selling and administrative expenses Maintenance and repairs expense Supplies expense 755,000 710,000 275,000 260,000 898,000 832,000 120,000 132,000 281,000 299,000 5,329,000 Depreciation expense Net income 978,000 963,000 4,993,000 $ 597,000 $ 638,000