When a Company Accepts a Note in Settlement of a Past

question 147

Multiple Choice

When a company accepts a note in settlement of a past due account, the effect on the accounting equation is

• A) an increase in a liability and a decrease in an asset
• B) an increase in an asset and a decrease in an asset
• C) a decrease in an asset and a decrease in stockholders' equity (expense)
• D) a decrease in a liability and an increase in stockholders' equity (revenue)

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Definitions:

Megawatts

A unit of power equal to one million watts, often used to describe the output capacity of power plants or the amount of electricity required by large entities.

Rent-Seeking Behavior

Actions by individuals or companies to increase their own wealth without creating new wealth or value, often through manipulating the environment in which economic activities occur.

Health Insurance

A type of insurance coverage that pays for medical and surgical expenses incurred by the insured or reimburses them for expenses incurred from illness or injury.

Net Social Cost

The comprehensive expense to the community for the production of one more unit of an item, encompassing both personal expenses and external factors.