USA Accounting for Product Exchanges

[Chase]

We are a retail business. From time to time, a product that we sold will be determined to be defective. We will order a replacement from the manufacturer. The manufacturer will give us a new invoice for the replacement part, and a credit memo (Zero Net Effect on AP). The part will be received into inventory and then placed on a new sales order and given to the customer for Zero dollars (removing the item from inventory). My question is, what is the proper accounting for the transactions. Should this exchange be included in Sales and COGS, or should I allow the Credit memo from the manufacturer to debit A/P and credit Inventory? Or Should I credit inventory, debit COGS, Credit Sales and Debit A/P? Thank you all for your help and thoughts.