What happens to cash and shareholders' equity on the balance sheet when a company's debt is written down by $100?

When a company's debt is written down by $100, it indicates that the company has reduced its obligations, thus positively affecting its financial position. In this case, the amount of debt that the company has on its balance sheet decreases. This adjustment directly impacts the shareholders' equity as well.

When debt is written down, it can result in a gain that increases retained earnings, a component of shareholders' equity. This is because the reduction in debt typically leads to lower interest expenses, which can positively influence net income. Consequently, when net income increases, it can lead to an increase in retained earnings, thereby raising the overall shareholders' equity.

Cash would not typically change as a result of a debt write-down. No additional cash transactions occur; instead, it is an accounting adjustment that reflects the decreased liability. Therefore, on the balance sheet, the effect of the write-down is a decrease in debt and an increase in equity, aligning with the overall principles of accounting and financial reporting.

This understanding highlights why the option indicating that cash decreases and debt decreases is appropriate in this context, as it correctly reflects the changes that happen on the balance sheet when a company’s debt obligation is reduced.