Galaxy Company sold merchandise costing $2,600 for $4,200 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation?

Total assets and total equity decrease by $1,600.Total assets decrease by $4,200 and total equity is decreased by $2,600.Total assets and total equity decrease by $4,200.Total assets and total equity increase by $1,600.