Kitty Company engaged in the following transactions in October 2011:

Oct. 7 Sold merchandise on credit to Ron Moore, terms n/30, FOB shipping point, $3,000 (cost, $1,800).

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

9 Paid Warta Company for shipping charges on merchandise purchased on October 8, $254.

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

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

14 Returned damaged merchandise received from Lima Company on October 8 for credit, $600.

17 Received check from Ron Moore for his purchase of October 7.

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

20 Paid Maria’s Company for purchase of October 10.

21 Paid Lima Company the balance from the transactions of October 8 and October 14.

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

REQUIRED

1. Prepare journal entries to record these transactions, assuming the company uses 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 Kitty Company receives rebates in cash from a supplier, should these cash rebates be reported as revenue? Why or why not?