Wiley Companys income statement for Year 2 follows:

Sales	$	2,500
Cost of goods sold		1,000
Gross margin		1,500
Selling and administrative expenses		400
Income before taxes		1,100
Income taxes		440
Net income	$	660

The companys selling and administrative expense for Year 2 includes $82 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	$	205		$	250
Inventory	$	160		$	180
Prepaid expenses	$	41		$	21
Current Liabilities
Accounts payable	$	113		$	81
Accrued liabilities	$	6		$	28
Income taxes payable	$	122		$	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 $14,000 gain on sale of investments and a $7,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?

NOTE: Both requirements are part of a single question.

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: 0 Adjustments to a cash basis: 0 Selling and administrative expenses Adjustments to a cash basis: 0 Income taxes Adjustments to a cash basis: 0 $ 0 Required 1 Required 2 Assume that during Year 2 Wiley had a $14,000 gain on sale of investments and a $7,000 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. ONo, 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