Question

Exercise 13A-2 Net Cash Provided by Operating Activities [LO13-4] Wiley Company’s income statement for Year 2 follows: Sales $ 150,000 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 Net income $ 12,000 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: Year 2 Year 1 Current Assets Accounts receivable $ 40,000 $ 30,000 Inventory $ 54,000 $ 45,000 Prepaid expenses $ 8,000 $ 6,000 Current Liabilities Accounts payable $ 35,000 $ 28,000 Accrued liabilities $ 5,000 $ 8,000 Income taxes payable $ 2,000 $ 2,500 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. Would these transactions affect the computation in (1) above?

Answer 1