Jacobs Company issued bonds with $158,000 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:

a. Decrease both assets and stockholders equity by $11,060.

b. Decrease stockholders equity by $11,060, decrease liabilities by $1,580, and decrease assets by $12,640.

c. Increase liabilities by $1,580, decrease assets by $11,060, and decrease stockholders equity by $12,640.

d. Decrease both assets and stockholders equity by $12,640.