Roberto listed his assets and liabilities on a personal balance sheet. Roberto’s Balance Sheet (September 2013) Assets Liabilities cash $1,800 credit card $4,000 investments $6,200 personal loan $1,000 house $150,000 mortgage $100,000 car $8,000 car loan $5,000 Total Total After creating the balance sheet, Roberto decided to use his investments to pay off his car loan. How will that decision affect the difference between his assets and liabilities?
Answer
A
The difference between the assets and the liabilities cannot be compared.
B
It will make the assets $5,000 less than the liabilities.
C
The difference between the assets and the liabilities will remain the same.
D
It will make the assets $5,000 more than the liabilities.
Explanation
Paying off the $5,000 car loan uses $5,000 of Roberto’s investments, so his assets decrease by $5,000. His liabilities also decrease by $5,000 because the car loan is eliminated. Since assets and liabilities fall by the same amount, the difference between them remains the same; the correct choice is “The difference between the assets and the liabilities will remain the same.”
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