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 investment— that 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.