Fair Company issued a $10,000 note to Capital Bank on August 1, 2009. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Fair's books to record accrued interest expense on December 31, 2009 will:

A.decrease assets and increase retained earnings by $500.

B.increase liabilities and decrease equity by $400.

C. decrease equity and increase liabilities by $1,200.

D. increase liabilities and decrease equity by $500.