Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, Year 1. The note carried a one-year term and a 12% rate of interest. How will the adjustment, dated December 31, Year 1, to record accrued interest expense impact the financial statements?
A) Decrease assets and decrease retained earnings by $2,000
B) Increase liabilities and decrease stockholders' equity by $2,000
C) Increase liabilities and decrease stockholders' equity by $1,600
D) Decrease stockholders' equity and increase liabilities by $4,800
Correct Answer:
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