Herndon Corp.purchased merchandise on account from Likert Corp.on November 18,2017.On November 21,2017,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?

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The return of merchandise decreases liabilities (accounts payable) because Herndon owes less to Likert, and increases stockholders' equity as it reduces the cost of goods sold, thereby increasing net income.