Franklin Company Issued a $40,000 Note to the Mercantile Bank

Multiple Choice

Franklin Company issued a $40,000 note to the Mercantile Bank on August 1,2016.The note carried a one-year term and a 12% rate of interest.The adjusting entry on Franklin's books to record accrued interest expense on December 31,2016 will

A) Decrease assets and decrease retained earnings by $2,000.
B) Increase liabilities and decrease equity by $2,000.
C) Increase liabilities and decrease equity by $1,600.
D) Decrease equity and increase liabilities by $4,800.