Jacobs Company issued bonds with $152,000 face value on January 1, Year 1. The bonds were issued at 105 and carried a 5-year term to maturity. They had a 8% stated rate of interest that was payable in cash on December 31st of each year. Jacobs uses the straight-line method of amortization. Based on this information alone, the recognition of interest expense on December 31, Year 1 would act to:

• Decrease equity by $10,640, decrease liabilities by $1,520, and decrease assets by $12,160.

• Decrease both assets and equity by $12,160.

• Decrease both assets and equity by $10,640.

• Increase liabilities by $1,520, decrease assets by $10,640, and decrease equity by $12,160.