Wiley Company's income statement for Year 2 follows: Sales Cost of goods sold Gross margin $ 2,400 1,500 900 Selling and administrative expenses 300 Income before taxes Income taxes Net income 600 240 $ 360 The company's 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 $ 200 $ 235 Inventory $ 162 $ 198 Prepaid expenses $ 39 $ 30 Current Liabilities Accounts payable $ 121 $ 82 Accrued liabilities $ 6 $ 21 Income taxes payable $ 116 $ 80 Required: 1. Using the direct method, convert the company's income statement to a cash basis. 2. Assume that during Year 2 Wiley had a $10,000 gain on sale of investments and a $5,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above? Required 1 Required 2 Using the direct method, convert the company's income statement to a cash basis. (Adjustment amounts 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: < Required 1 0 0 0 0 $ 0 Required 2 > Required 1 Required 2 Assume that during Year 2 Wiley had a $10,000 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. 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. < Required 1 Required 2 >