Exercise 6. There are times when a company is not sure whether a liability should be actually shown as a dollar amount in the Liability section of the Balance Sheet or just mentioned in the Notes to the Financial Statements. What are the 2 criteria accountants use to make the decision about these contingent liabilities (depedent on a future event) as to inclusion on the Balance Sheet?

1)

AND

2)

If the accountant decides that the contingent liability should not be ahown as an amount on the Balance Sheet, is it then always shown and discussed in the Notes to the Financial Statements?

Exercise 7. On Dec 1, 20XX, Diaz Company introduced a new product that included a one-year warranty on parts. In December, 1,300 units were sold. Diaz estimates that 4% of these will be brought back under the warranty for replacement of parts at an average cost of $100 per unit. Prepare (a) the adjusting entry needed at December 31 20XX for this contigent Liability and (b) the entry required in January 20X1, when a defiective unit is replaced for a cost of $80 of labor and $49 in parts from the Supplies.

(a)

(b)

Exercise 8. For this problem please use dollars and cents and round to the nearest cent. Cindy Newer, Single with 1 exemption, has a regular hourly rate is $25/hour with time-and-a-half for any hours worked per week over 40 hours in a week. During a week in April, Cindy works 47 hours. Using Exhibit 2 in Objective 2 from the Chapter, calculate the Federal Tax to be withheld. Also, using the Social Security and Medicare percentages used in the textbook, calculate those amounts to be withheld. Cindy lives in Nevada (no State Income Tax) and has no voluntary amounts withheld. Calculate Cindys gross payroll for the week, amounts to be withheld, and her net pay (take home pay) for the week. Show the journal entry required for Cindys payroll (please show amounts in dollars and cents).