[The Following Information Applies to the Questions Displayed Below

Multiple Choice

[The following information applies to the questions displayed below.]

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.