If a company uses $100 million in cash to pay off debt,its shareholders' equity will increase by $100 million.
BT: Application

Question

Quizplus · Accepted Answer

When a company uses cash to pay off debt, the amount of the debt decreases, but there is no corresponding increase in shareholders' equity. Shareholders' equity is calculated by subtracting liabilities from assets, but paying off debt does not increase assets. In fact, paying off debt can decrease assets if the cash used to pay off the debt was previously counted as an asset.

If a Company Uses $100 Million in Cash to Pay