While preparing for an upcoming exam, you are studying with some classmates when one of them states the following: “Dividends are extra cash fl ow to the company. Companies do not declare dividends unless they have an overall positive cash fl ow. To determine the amount of dividends a company declared during the year, you should look at the statement of income for the year.”

Required

Evaluate your classmate’s response. Identify the elements that are correct and incorrect. For any elements that are incorrect, explain why.