Darlington Company Entered into the Following Business Events During Its

Multiple Choice

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system.1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30.2) The company returned $1,200 of merchandise to the supplier before payment was made.3) The liability was paid within the discount period.4) All of the merchandise purchased was sold for $18,800 cash.What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements?

A) Assets and stockholders' equity decrease by $1,176.
B) Assets and liabilities decrease by $1,176.
C) Assets and liabilities decrease by $1,200.
D) None. It is an asset exchange transaction.