Immediately after the last interest payment, Henderson Company converted $3,000,000 of its bonds into 300,000 shares of $10 par value common stock. The unamortized premium on the bonds at the date of the conversion was $870,000. As a result of this conversion:

liabilities decreased by $3,870,000 and stockholders' equity increased by $3,000,000.

liabilities decreased by $870,000 and stockholders' equity increased by $870,000.

liabilities decreased by $3,000,000 and stockholders' equity increased by $3,000,000.

liabilities decreased by $3,870,000 and stockholders' equity increased by $3,870,000.