11On June 15, 2020, a customer was seriously injured from a fall while visiting your store. You hire a lawyer to defend your firm, and as of August 2020, the lawyer expect that it is probable that you lose the lawsuit. The lawyers best estimate of the damages to be paid is $100,000. In December 2020, you settle the lawsuit for $110,000. The December entry has the following effect on the accounting equation:

Decrease assets, liabilities, and stockholders equity

Decrease assets and liabilities, no effect on stockholders equity

Decrease assets, increase liabilities, and decrease stockholders equity

Decrease liabilities and stockholders equity, no effect on assets

Increase liabilities and decrease stockholders equity, no effect on assets

12Redmond Retail Company borrows $25,000 by issuing a 10-month, 6% note payable on June 1, 2020. Redmond Retail accrues interest on a monthly basis. On April1, when Redmond Retail repays the note, the entry includes:

Debit to Interest Payable for $1,125

Credit to Interest Payable for $1,250

Credit to Cash for $26,500

Credit to Cash For $25,000

Debit to Interest Expense for $1,250