(Recording Bad Debts)At the end of 2020, Perez Corporation has accounts receivable of $2.5 million and an allowance for doubtful accounts of $120,000. On January 16, 2021, Perez determined that its $20,000 receivable from Morganfield Ltd. will not be collected, and management has authorized its write off. On January 31, 2021, Perez received notification that the company will be receiving $0.10 for every $1.00 of accounts receivable relating to McKinley Ltd. The company had previously written off 100% of the amount due from McKinley ($60,000).

Instructions

a.Prepare the journal entry for Perez Corporation to write off the Morganfield receivable and any journal entry needed to reflect the notice regarding McKinley Ltd.

b.What is the estimated net realizable value of Perez's accounts receivable before and after the entries in part (a)? What is the book value of Perez's accounts receivable before and after the entries in part (a)?