Assume the perpetual inventory method is used.

(1) The company purchased $13,000 of merchandise on account under terms 2/10, n/30.
(2) The company returned $2,500 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 $20,000 cash.

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

(A) Assets and liabilities are reduced by $2,450.
(B) None.
(C) It is an asset exchange transaction.
(D) Assets and equity are reduced by $2,500.
(E) Assets and liabilities are reduced by $2,500.