?Why can?t 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.

You have 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 has asked you to prepare a written report explaining the apparent discrepancy between Enigma?s profitability and its cash flows. To increase the chances of your boss?s 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.

Required:Determine net cash flows from operating activities by both the direct and indirect methods.

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ENIGMA CORPORATION Income Statement For the Six Months Ended December 31, 2021 ($ in millions) $75 (30) (5) (35) Sales revenue Cost of goods sold Depreciation expense Remaining expenses $ 5 Net income ENIGMA CORPORATION Balance Sheet December 31, 2021 ($ in millions) $ 1 Cash Accounts receivable (net) Merchandise inventory Equipment (net) 20 15 44 $80 Total $ 2 Accounts payable Accrued liabilities Notes payable 36 Common stock 30 Retained earnings $80 Total