Alternative Treatments of Items of the Statement of Cash Flows

The statement of cash flows is intended to provide information about the investing,

financing, and operating activities of an enterprise during an accounting period. In

a statement of cash flows, cash inflows and outflows for interest expense, interest

revenue, and dividend revenue and payments to the government are considered

operating activities.

Required:

a. Do you believe that cash inflows and outflows associated with nonoperating

items, such as interest expense, interest revenue, and dividend revenue, should

be separated from operating cash flows? Explain.

b. Do you believe that the cash flows from investing activities should include

not only the return of investment but also the return on investmentthat

is, the interest and dividend revenue? Explain.

c. Do you believe that the cash flows from the sale of an investment should

also include the tax effect of the sale? Explain. Do you believe that cash

flows from sales of investments should be net of their tax effects, or do you

believe that the tax effect should remain an operating activity because it is a

part of payments to the government? Explain.