The Business Development Corporation (BDC), a federal agency (fictitious), makes loans to high-tech companies that satisfy specified criteria. The loans are intended to encourage research and development and are made at rates substantially below market.
The BDC made a loan of $100,000nto Interface Networks, Inc. The interest rate was 6 percent, and the loan was payable over a three-year period in equal installments of $37,411. At the time of the loan, prevailing Treasury interest rates for loans of comparable maturities were 10 percent.
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Question & Answer: The Business Development Corporation (BDC), a federal agency (fictitious), makes loans to high-tech companies that satisfy specified criteria……
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1. What was the amount of the loan subsidy?
2. How and when should the agency recognize the value of the subsidy? Explain.
3. Prepare a journal entry to record the loan and recognize the subsidy.
|Rate of Interest||6.00%|
|Yearly Payment with subsidy=|
|Yearly payment with Subsidy|
|Year||EYI||Int at 6%||Balance|
|Year||EYI||Int at 10%||Balance|
|Calculation of Subsidy||Year wise amount|
|Loan subsidy expenses should be debited at the time of graning the loan by creating the reserve and which is to be adjusted yearwise as when interest become receivable|
|a journal entry to record the loan and recognize the subsidy.|
|Loan subsidy expense||8,401.50|