(Sales Recorded Both Gross and Net) On June 3, David Reid Company sold to Kim Rhode merchandise having a sale price of $5,000 with terms of 2/10, n/60, f.0.b. shipping point. An invoice totaling

$120, terms n/30, was received by Rhode on June 8 from the Olympic Transport Service for the freight cost. Upon receipt of the goods, June 5, Rhode notified Reid Company that merchandise costing $400 contained flaws that rendered it worthless. The same day Reid Company issued a credit memo covering the worthless merchandise and asked that it be returned at company expense. The freight on the returned merchandise was $24, paid by Reid Company on June 7. On June 12, the company received a check for the balance due from Rhode.

Instructions

(a) Prepare journal entries on Reid Company books to record all the events noted above under each of the following bases.

(1) Sales and receivables are entered at gross selling price.

(2) Sales and receivables are entered net of cash discounts.

(b) Prepare the journal entry under basis 2, assuming that Kim Rhode did not remit payment until August 5.