Newton Company Settles a Liability by Making a Payment in Cash.How

question 162

Multiple Choice

Newton Company 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:

Spot Exchange Rate

The current market price for exchanging one currency for another for immediate delivery.

Forward Exchange Rate

An agreed exchange rate for a currency to be exchanged at a future date, used in hedging and trading strategies.

Inflation Rates

The rate at which the cost of general goods and services inflates, consequently eroding the power to buy.

Relative Purchasing Power Parity

An economic theory that states the rates of change in price levels between two countries should equal the rate of change in the exchange rate between their currencies.