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Wiley Companys income statement for Year 2 follows:

Sales	$	2,100
Cost of goods sold		1,400
Gross margin		700
Selling and administrative expenses		300
Income before taxes		400
Income taxes		160
Net income	$	240

The companys selling and administrative expense for Year 2 includes $74 of depreciation expense. Selected balance sheet accounts for Wiley at the end of Years 1 and 2 are as follows:

	Year 2			Year 1
Current Assets
Accounts receivable	$	210		$	235
Inventory	$	162		$	198
Prepaid expenses	$	36		$	28
Current Liabilities
Accounts payable	$	126		$	78
Accrued liabilities	$	6		$	30
Income taxes payable	$	124		$	85

Required:

1. Using the direct method, convert the companys income statement to a cash basis.

2. Assume that during Year 2 Wiley had a $10,000 gain on sale of investments and a $6,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?

Required 1 Required 2 Using the direct method, convert the company's income statement to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Wiley Company Direct Method of Determining the Net Cash flows from Operating activities Adjustments to a cash basis: Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: these transactions affect the computation In (1) above? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assume that during Year 2 Wiley had a $10,000 gain on sale of investments and a $6,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above? No, gains and losses on income statement are ignored under direct method. No, gains and losses on income statement are considered under direct method. Yes, gains and losses on income statement are ignored under direct method. Yes, gains and losses on income statement are considered under direct method

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