Use the Following for Questions

Multiple Choice

Use the following for questions
Assume the perpetual inventory method is used.
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 have on the accounting equation?

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