Question

The payment of a liability:

a. decreases assets and stockholders' equity.

b. increases assets and decreases liabilities.

c. decreases assets and increases liabilities.

d. decreases assets and liabilities.

Answer 1

The correct answer is c. decreases assets and increases liabilities.

Step-by-step explanation:

When a liability is paid off, it typically involves using assets (such as cash or other resources) to settle the obligation. As a result, assets are reduced because they are being utilized to fulfill the liability. At the same time, the liability itself is decreased since it is being settled or paid off. Therefore, the payment of a liability reduces assets and increases liabilities.