Assume the Perpetual Inventory Method Is Used

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.

Correct Answer:

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