Jacobs Company issued bonds with a $170,000 face value on January 1, Year 1. The bonds were issued at 105 and carried a 5-year term to maturity. They had a 8% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method to amortize bond discounts and premiums. Based on this information alone, how does the recognition of interest expense during Year 1 affect the company's accounting equation?
A. Decrease both assets and stockholders' equity by $11,900
B. Increase liabilities by $1700, decrease assets by $11,900, and decrease equity by $13,600
C. Decrease both assets and stockholders' equity by $13,600
D. Decrease equity by $11,900, decrease liabilities by $1700, and decrease assets by $13,600
Answer: D
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