Grant Corporation: Corrections to net income with journal entries

The controller for Grant Corporation is concerned about certain business transactions that the company experienced during 2008. The controller, after discussing these matters with various individuals, has come to you for advice. The transactions at issue are presented below.

1. The company has decided to switch from the direct write-off method in accounting for bad debt expense to the percentage-of-sales approach. Assume that Grant Corporation has recognized bad debt expense as the receivables have actually become uncollectible in the following way:
2007 2008
From 2007 sales 31,800 12,000
From 2008 sales 45,000

The controller estimates that an additional $65,400 will be charged off in 2009: $11,400 applicable to 2007 sales and $54,000 to 2008 sales.

2. Inventory has been shipped on consignment. These transactions have been recorded as ordinary sales and billed as such on account. At December 31, 2008, inventory billed and in the hands of consignees amounted to $400,000. The percentage markup on selling price is 20%. Assume that consigned inventory is sold the following year. The company uses the perpetual inventory system.

3. During the current year, the company sold $600,000 of goods on the installment basis. The cost of sales associated with these goods sold is $420,000. The company inadvertently handled these sales and related costs as part of the regular sales transactions. Cash of $172,000, including a down payment of $60,000, was collected on these installment sales during the current year. Due to questionable collectibility, the installment method was considered appropriate.

Instructions
(a) Assume that Grant Corporation reported net income of $1,000,000 for 2008. Present a schedule showing the corrected net income after reviewing the above transactions.
(b) Prepare the journal entries necessary at December 31, 2008, assuming that the books have been closed.