Seattle Company Issued a $90,000 Face Value Discount Note Payable

Seattle Company issued a $90,000 face value discount note payable to First Federal Bank on September 1, Year 1. The note had a 4% discount rate and a one-year term. What is the effect of the accrual of interest expense on the financial statements?

A) Liabilities will increase and retained earnings will decrease.
B) Assets and liabilities will decrease.
C) Assets will increase and retained earnings will increase.
D) Liabilities will increase and assets will decrease.