Question

Wiley Company's income statement for Year 2 follows: Sales $2,500 Cost of goods sold 1,100 Gross margin 1,400 Selling and administrative expenses 500 Income before taxes 900 Income taxes Net income $ 540 360 The company's selling and administrative expense for Year 2 includes $76 of depreciation expense. Selected balance sheet accounts for Wiley at the end of Years 1 and 2 are as follows: Year 2 Year 1 $210 $154 $ 38 $250 $196 $ 26 Current Assets Accounts receivable Inventory Prepaid expenses Current Liabilities Accounts payable Accrued liabilities Income taxes payable $117 $ 11 $110 $ 79 $ 23 $ 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 $12,000 gain on sale of investments and a $6,000 loss on the sale of equipment. Would these transactions affect the computation in (1) above?

Answer 1

Cash Flow from Operatign Activities- Wiley Company's
Particular	Amount	Amount
Sales	$2,500.00
Adjustment To A Cash Basis
Decrease In Accounts Receivable	$40.00	$2,540.00
Cost Of Goods Sold	$1,100.00
Adjustment To A Cash Basis
Less:Decrease In Inventory	-$42.00
Less:Increase In Accounts Payable	-$38.00	-$80.00
Selling And Administrative Expense	$500.00
Adjustment To A Cash Basis
Less:Depreciation Expense	-$76.00
Add:Increase In Prepaid Expense	$12.00
Add:Decrease In Accrued Liabilities	$12.00	$448.00
Income Tax Expenses	$360.00
Adjustment To A Cash Basis
Less:Increase In Income Taxes Payable	-$30.00	$330.00
Net Cash Provided By Operating Activities		$3,238.00

No,gains and losses on income statement are ignored under direct method