Newton Corporation Settles a Liability by Making a Payment in Cash

question 92

Multiple Choice

Newton Corporation settles a liability by making a payment in cash. How does paying this liability affect the accounting equation of the business?

• A) Assets and liabilities decrease.
• B) Liabilities decrease and equity increases.
• C) Assets and liabilities increase.
• D) Assets increase and equity decreases.

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Definitions:

Noncontrolling Interest

A stake in a company that is less than 50%, implying that the holder does not have control over the company's operations.

Equity Method

The equity method is an accounting technique used to record investments in associate companies where the investor has significant influence but does not control the company outright, typically identified by owning 20-50% of the voting stock.

Deferred Intra-entity

Pertains to transactions between entities within the same company that are not settled immediately but are recorded and settled at a later date.

Markup Over Cost

The ratio or percentage by which a product’s selling price exceeds its cost, effectively representing the gross profit margin.