Immediately After the Last Interest Payment, Hoffman & Stuart Company

Immediately after the last interest payment, Hoffman & Stuart Company converted $2,500,000 of its bonds into 250,000 shares of $10 par value common stock. The unamortized premium on the bonds at the date of conversion was $86,625. The entry to record the conversion would include:

A) liabilities decreased by $3,600,000 and stockholders' equity increased by $3,440,000.
B) liabilities decreased by $3,440,000 and stockholders' equity increased by $3,600,000.
C) liabilities decreased by $3,600,000 and stockholders' equity increased by $3,400,000.
D) liabilities decreased by $3,440,000 and stockholders' equity increased by $3,440,000.