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Wiley Companys income statement for Year 2 follows: Sales $ 2,350 Cost of goods sold 1,400 Gross margin 950 Selling and administrative expenses 400 Income

Wiley Companys income statement for Year 2 follows:

Sales $ 2,350
Cost of goods sold 1,400
Gross margin 950
Selling and administrative expenses 400
Income before taxes 550
Income taxes 220
Net income $ 330

The companys selling and administrative expense for Year 2 includes $72 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 $ 255
Inventory $ 164 $ 194
Prepaid expenses $ 39 $ 25
Current Liabilities
Accounts payable $ 112 $ 85
Accrued liabilities $ 13 $ 28
Income taxes payable $ 130 $ 65

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 $5,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?

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