Liabilities Arising from Day-To-Day Operations Dazee Corporation has not made year-end adjustments to recognize liabilities associated with the following:

1. The payroll system was changed during the year. All employees are now paid on the 20th of the month for work to that date rather than the last day of the month.

2. Dazee borrowed $500,000 on April 1 and will pay interest and principal on the note next April.

3. Near the end of the year, several large customers prepaid services that will be provided during the following year.

The payments were treated as service revenue at the time they were received.

4. The company introduced a new product line during the year and offered customers free repair or replacement for 5 years if the product fails to operate as advertised.

a. What effect would taking each of the above situations into consideration have on Dazee’s reported liabilities?

b. What effect would taking each of the above situations into consideration have on Dazee’s reported net income for the current year?