Question

Global used million of its available cash to repay million of its​ long-term debt. ​(Select the best choice​ below.) A. ​Long-term liabilities would decrease by ​million, and cash would decrease by the same amount. The book value of equity would be unchanged. B. ​Long-term liabilities would decrease by ​million, and cash would increase by the same amount. The book value of equity would be unchanged. C. ​Long-term liabilities would increase by ​million, and cash would increase by the same amount. The book value of equity would be unchanged. D. ​Long-term liabilities would decrease by ​million, and cash would decrease by the same amount. The book value of equity would change by .

Answer 1

A. ​Long-term liabilities would decrease by ​million, and cash would decrease by the same amount. The book value of equity would be unchanged.

Step-by-step explanation:

Global had money in its hands, also there is a standing long term liability in the books.

When the liability will be paid, the liability will decrease with the amount it is paid off, and if paid completely the liability will become 0.

Further, if it is paid by using cash of the business, then the cash will decrease with the same amount.

Accordingly on the assets side of the accounting equation cash is reduced.

And simultaneously the liabilities are reduced with the same amount on the other side.

And there shall be no effect on equity value.

Accounting equation is:

Assets = Liability + Equity

When assets are decreased by million and liabilities are also decreased by million then:

Assets - million = Liabilities - million + Equity

Assets - million + million = Liabilities + Equity

Assets = Liabilities + Equity