A Business Settles a Liability by Making a Payment with Cash.How

question 45

Multiple Choice

A business settles a liability by making a payment with cash.How does paying this liability affect the accounting equation?

• A) Assets decrease; liabilities decrease.
• B) Liabilities decrease; owner's equity increases.
• C) Assets increase; liabilities increase.
• D) Assets increase; liabilities decrease.

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Definitions:

Fair Value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Defined Benefit Pension Plans

Pension plans that promise a specified monthly benefit at retirement, which may be calculated through a formula based on earnings and years of service.

Required Disclosure

Obligatory sharing of specific financial or operational information by a company, as mandated by regulatory bodies or laws.

Projected Benefit Obligation

A measurement of the present value of future pension liabilities, based on expected future salary increases.