ued $5,000,000 face value, 20-year, 12% bonds on March 1, 2020 when the market rate of interest was 12%. Interest payments are due every February 28 and August 31. The company follows a calendar year.

Required:

Indicate the best answer for the effect of the following on the companys accounting equation. Identify each account title affected and dollar change, and whether it increased or decreased.

The accrual of interest expense at December 31, 2020.

		Increase interest expense, thereby decreasing net income, retained earnings, and cash for 300,000.
		Increase interest expense, thereby decreasing net income, retained earnings, and cash for 200,000.
		Increase interest payable and interest expense, thereby decreasing net income and retained earnings for 300,000.
		Increase interest payable and interest expense, thereby decreasing net income and retained earnings for 200,000.