Harry Ltd. sells merchandise on account for $6,000 to Megan Ltd., terms 1/15, n/30. Megan returns $1,400 worth of merchandise that was damaged, along with a cheque to settle the account within the discount period. What entry does Harry make upon receipt of the cheque?

1. debit Cash for $4,600, debit Sales Returns and Allowances for $1,354, debit Sales Discounts for $46 and credit Accounts Receivable for $6,000

2. debit Cash for $4,554, debit Sales Returns and Allowances for $1,400, debit Sales Discounts for $46 and credit Accounts Receivable for $6,000

3. debit Cash for $4,600 and credit Accounts Receivable for $4,600

4. debit Cash for $4,540, debit Sales Discounts for $60, debit Sales Returns and Allowances for $1,400 and credit Accounts Receivable for $ 6,000