Jacobs Company issued bonds with $300,000 face value on January 1, 2016. The bonds were issued at 102 and carried a 5-year term to maturity. They had a 9% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method of amortization. Based on this information alone, the recognition of interest expense on December 31, 2016 would act to: A. Decrease equity by $25,800, decrease liabilities by $1,200, and decrease assets by $27,000.
B. Decrease both assets and equity by $2,700.
C. Decrease both assets and equity by $25,800.
D. Increase liabilities by $1,200, decrease assets by $25,800, and decrease equity by $27,000.
