Practice prompt · Q:transactions-to-statements/liability-settlement-equation-002

Pay part of an existing payable

Determine the equation effects of settling part of an existing liability.

Updated Aug 30, 2026 Review due Nov 30, 2026

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Pine Street Foods has $14,000 Cash, $6,000 Supplies, $6,000 Accounts Payable, and $14,000 Common Stock. It pays $4,000 of the payable. Which statement describes the payment?

Choose the best answer. A Assets decrease $4,000; liabilities decrease $4,000; equity does not change. B Assets decrease $4,000; expenses increase $4,000; equity decreases $4,000. C Assets do not change because the payment only changes a liability. D Liabilities decrease $6,000 because the original payable is removed in full.

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Answer: A

Cash falls from $14,000 to $10,000, while Supplies remain $6,000. Total assets therefore fall from $20,000 to $16,000. Accounts Payable falls from $6,000 to $2,000, and equity remains $14,000.