I tried updating all of my SDKs by just going into the Project Structure > Platform Settings > SDKs and changing the Java SDK, but that didn't work, so I had to recreate the configurations from scratch.
Here's how to create your SDKs with the latest Java:
- In Project Structure > Platform Settings > SDKs, click the "+" button to add a new SDK.
- In the pop-up, go into your Android SDK folder and click "Choose"
- Another pop-up will appear asking for which SDK and JDK you want to use. Choose any Android SDK and the 1.7 JDK.
- Go to Project Structure > Project Settings > Project and change your Project SDK to the one you just created. You should see the name of the SDK contain the new Java version that you installed.