Assume the perpetual inventory method is used.

• The company purchased $14,000 of merchandise on account under terms 2/10, n/30.
• The company returned $3,500 of merchandise to the supplier before payment was made.
• The liability was paid within the discount period.
• All of the merchandise purchased was sold for $22,000 cash.

What effect will the return of merchandise to the supplier have on the accounting equation?

Multiple Choice

• Assets and liabilities are decreased by $3,500.

• None. It is an asset exchange transaction.

• Assets and stockholders equity are decreased by $3,500.

• Assets and liabilities are decreased by $3,430.