Ahi Corporation Purchased Merchandise on Account from Yudder Inc

Ahi Corporation purchased merchandise on account from Yudder Inc. on December 12, 2012. On December 13, 2012, Ahi returned damaged merchandise to Yudder and was granted an adjustment on its account. Ahi uses the periodic inventory system. What effect does the merchandise return have on Ahi's accounting equation?

A) Assets and equity decrease.
B) Assets and liabilities decrease.
C) Liabilities decrease and equity increases.
D) Liabilities and equity decrease.