Herndon Corp. purchased merchandise on account from Likert Corp. on November 18, 2014. On November 21, 2014,

Herndon returned damaged merchandise to Likert and was granted an adjustment on its account. Herndon uses the

periodic inventory system. What effect does the merchandise return have on Herndon's accounting equation?

a. Assets and stockholders' equity decrease.

b. Assets and liabilities decrease.

c. Liabilities decrease and stockholders' equity increases.

d. Liabilities and stockholders' equity decrease.