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 $12,200 of merchandise on account under terms 2/10, n/30. 2) The company returned $1700 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 $18,400 cash. What effect will the return of merchandise to the supplier in event (2) have on Darlington's financial statements?
A. Assets and liabilities decrease by $1700.
B. None. It is an asset exchange transaction.
C. Assets and liabilities decrease by $1666.
D. Assets and stockholders' equity decrease by $1700.
Answer: A
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