Wiley Company\'s income statement for Year 2 follows: Sales Cost of goods sold G

Question

Wiley Company's income statement for Year 2 follows: Sales Cost of goods sold Gross marqin Selling and administrative expenses Income before taxes Income taxes Net income $ 2,500 1,100 1,400 300 1,100 440 $660 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 Inventory Prepaid expenses Current Liabilities Accounts payable Accruedliabilities Income taxes payable $205 $240 $164 $188 $ 38 26 $117 $ 73 $ 5 23 $128 $ 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?

Explanation / Answer

Ans 1 Income Statement to Cash basis Sales 2500 Add: decrease in Accounts Receivable 35 Cash collected from customers 2535 Less: Cost of good sold 1100 Less: Decraese in Inventory -24 Less: Incraese in accounts payable -44 Cash paid to suppliers 1032 Selling and Administrative expenses 300 Less: depreciation -74 Add:Decrease in Accured liabilities 18 Add: incraese in prepaid expenses 12 Payment Selling and Administrative expenses 256 Income tax expenses 440 Less: incraese in Income tax payable -48 Payment Income tax expenses 392 Net cash provided by opearting activities 855 ans 2 No gain on sale of investment and loss of sale on equipment would not effect cash flow from operating activities as this is the part of investing activities, it is reported in cash flow from investing activities so not included in operating activities

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