Wiley Company’s income statement for Year 2 follows:

The company’s selling and administrative expense for Year 2 includes $7,500 of depreciation expense. Selected balance sheet accounts for Wiley at the end of Years 1 and 2 are as follows:

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 $9,000 gain on sale of investments and a $3,000 loss on the sale of equipment. Explain how these two transactions would affect your computations in (1) above.

$150,000 Sales Cost of goods sold 90,000 Gross margin 60,000 Selling and administrative expenses 40,000 Income before taxes 20,000 Income taxes 8,000 $ 12,000 Net income