Wiley Companys income statement for Year 2 follows:

Sales	$ 2,200
Cost of goods sold	1,100
Gross margin	1,100
Selling and administrative expenses	400
Income before taxes	700
Income taxes	280
Net income	$ 420

The companys selling and administrative expense for Year 2 includes $78 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	$ 184
Prepaid expenses	$ 43	$ 29
Current Liabilities
Accounts payable	$ 116	$ 71
Accrued liabilities	$ 12	$ 22
Income taxes payable	$ 120	$ 75

Required:

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

2. Assume that during Year 2 Wiley had a $13,000 gain on sale of investments and a $4,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?