Wiley Companys income statement for Year 2 follows:

Sales	$ 2,850
Cost of goods sold	1,500
Gross margin	1,350
Selling and administrative expenses	400
Income before taxes	950
Income taxes	380
Net income	$ 570

The companys selling and administrative expense for Year 2 includes $80 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	$ 255
Inventory	$ 162	$ 192
Prepaid expenses	$ 41	$ 24
Current Liabilities
Accounts payable	$ 96	$ 72
Accrued liabilities	$ 13	$ 24
Income taxes payable	$ 130	$ 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 $11,000 gain on sale of investments and a $5,000 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.radio button unchecked1 of 4 No, gains and losses on income statement are considered under direct method.radio button unchecked2 of 4 Yes, gains and losses on income statement are ignored under direct method.radio button unchecked3 of 4 Yes, gains and losses on income statement are considered under direct method.radio button unchecked4 of 4