Herrindale Mart borrows $420,000 on July 1 with a short-term loan that has an annual interest rate of 5% which is payable on the first day of each subsequent quarter.

What will Herrindale Mart need to accrue on August 31, assuming that no accrual has yet been made?

A) $21,000; Decrease liabilities and decrease cash

B) $7,000; Decrease liabilities, decrease cash

C) $3,500; Increase liabilities, increase expenses

D) $7,000; Increase liabilities, decrease retained earnings