Marketable Securities and Investment Securities (net): The statement of cash flows classifies net purchases and sales of marketable securities (current asset) and investment securities (noncurrent asset) as investing transactions. The net changes in these accounts on the projected balance sheets determine the cash flow amounts for these items on the statement of cash flows. Some error in the implied cash flow amount from investment securities can occur. This change should be increased (become less negative) for the excess (if any) of equity earnings over dividends received from noncontrolled affiliates (which is a non-cash increase in this asset amount). Similarly, the excess of equity earnings over dividends received also should be subtracted from net income in the operating section of the statement of cash flows. Rather than making assumptions about this relatively immaterial item (the effects of which completely offset each other), we simply treat the entire change in investments as an investing transaction. This choice means that cash flows from operating activities may be slightly overstated and cash flows from investing activities may be slightly understated by an equivalent amount but that the net change in cash each year is not affected.
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