When a liability is paid, which of the following is true? Group of answer choices 1.Total assets decrease by the same amount that total liabilities increase. 2.Total assets and total liabilities are unchanged. 3.Total assets and total owners' equity decreases. 4.Net assets remain unchanged.
Question
When a liability is paid, which of the following is true? Group of answer choices
1.Total assets decrease by the same amount that total liabilities increase.
2.Total assets and total liabilities are unchanged.
3.Total assets and total owners' equity decreases.
4.Net assets remain unchanged.
Solution
When a liability is paid, the following statement is true:
- Net assets remain unchanged.
When a liability is paid, it involves using cash or other assets to settle the obligation. As a result, the total assets of the entity decrease by the same amount that the total liabilities decrease. This transaction does not directly impact the total owners' equity, as it represents the residual interest in the assets after deducting liabilities. Therefore, the net assets (total assets minus total liabilities) remain unchanged.
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