Sentence: Ice floats on water, making it an exception to the general rule
of a substance being denser in its solid state than in its liquid state.
Meaning: The fact that ice floats on water is an exception to a general rule. What is this general rule? That a substance is denser in its solid state than in its liquid state. To put it in geeky terms, the pronoun 'it' refers to the entire clause, 'ice floats on water', and this clause is an exception to the general rule that a substance is denser in its solid state than in its liquid state. The correct answer will clearly articulate this idea.
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A. of a substance being denser in its solid state than in its liquid state
Ice floats on water, making it an exception to the general rule of a substance being denser? This is a clear candidate for elimination, because 'rule of a' completely distorts the intended meaning. Eliminate A.
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B. of how a substance is denser in its solid state than in its liquid state
This is tricky, although it has the same problem as A. The intended meaning here is that the fact that ice floats on water is an exception to a general rule. How the substance is denser in its solid state doesn't really have much to do with the meaning. Eliminate B.
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C. that a substance is denser when its state is solid than when liquid
This option starts with 'that', which is a good sign. However, the rest of the sentence has red flags all over it. An ambiguous pronoun and an unnecessary adverb should be enough reasons to get rid. Eliminate C.
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D. that a substance is denser in its solid state than in its liquid state
CORRECT. This clearly articulates the idea that we discussed while analyzing the meaning of the sentence. Keep D.
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E. that a substance is denser when solid than when its state is liquid
Ah, the sneaky adverbs again. The adverb 'when' completely distorts the intended meaning of the original sentence. We're concerned with the substance being denser in its solid state, not when its solid. Also, the awkward comparison between the substance being 'denser when solid than when its state is liquid' is enough reason for us to cross E out. Eliminate E.
Option D it is!
Hope this helps!