[Jott]

question: On December 1, 20X1, Money Co. gave Home Co. a $200,000, 11% loan. Money paid proceeds of $194,000 after the deduction of a $6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly installments of $4,310, beginning January 1, 20X2. The repayments yield an effective interest rate of 11% at a present value of $200,000 and 12.4% at a present value of $194,000. What amount of income from this loan should Money report in its 20X1 income statement?

answer: $2,005 (194,000 * 12.4% * 1/12)

why is the nonrefundable loan origination fee not amortized over the 60 monthly payments and included in income from the load?

[Tim]

Good question. I'd think the answer would be the $2005 plus $100 for the origination fee.

[Author]

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