Question
Setup : At the beginning of each year from year 1 to year 3, Growth Bank originates one million three-year fixed-rate loans with initial amount
Setup: At the beginning of each year from year 1 to year 3, Growth Bank originates one million three-year fixed-rate loans with initial amount lent of $240.18 per loan. The contractual terms of the loans require the borrowers to pay $100 at the end of the current year and following two years. These payments reflect a contractual interest rate of 12%. On average, Growth expects the borrowers to pay only 95% of the promised payments each year
Assume instead that that at the end of year 1 Growth Bank receives only $90 (million) for this vintage of loans and expects to receive this amount in years 2 and 3 as well. Record the journal entries from the end of year 1 throughout the remaining life of the loans assuming that credit losses are as expected at the end of year 1.
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