Vargo Company engaged in the following transactions in August 2011:

Aug. 7 Sold merchandise on credit to Ken Smith, terms n/30, FOB shipping point, $3,000 (cost, $1,800).

8. Purchased merchandise on credit from Novak Company, terms n/30, FOB shipping point, $6,000.

9 Paid Smart Company for shipping charges on merchandise purchased on August 8, $254.

10 Purchased merchandise on credit from Mara’s Company, terms n/30, FOB shipping point, $9,600, including $600 freight costs paid by Sewall.

14 Sold merchandise on credit to Rose Milito, terms n/30, FOB shipping point, $2,400 (cost, $1,440).

14 Returned damaged merchandise received from Novak Company on August 8 for credit, $600.

17 Received check from Ken Smith for his purchase of August 7.

19 Sold merchandise for cash, $1,800 (cost, $1,080).

20 Paid Mara’s Company for purchase of August 10.

21 Paid Novak Company the balance from the transactions of August 8 and August 14.

24 Accepted from Rose Milito a return of merchandise, which was put back in inventory, $200 (cost, $120).

Required

1. Prepare entries in journal form (refer to the Review Problem) to record the transactions, assuming use of the perpetual inventory system.

2. Receiving cash rebates from suppliers based on the past year’s purchases is a common practice in some industries. If at the end of the year Vargo Company receives rebates in cash from a supplier, should these cash rebates be reported as revenue? Why or why not?