medium · Investment Banking accounting
A company has 100 in cash and no other assets. It has 50 in debt and 50 in equity.
If the company uses 20 of its cash to pay off 20 of its debt, how do the Three Statements change?
- Total Assets and Total Liabilities both decrease by 20; no impact on the Income Statement.
- Equity increases by 20 because the company now carries meaningfully less outstanding debt overall.
- Net Income increases by 20 because the outstanding debt was removed from the books.
- Cash Flow from Operations decreases by 20 due to the repayment of loan principal.
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