I made up a bookkeeping problem for myself:
Larry Lender loans Bob Borrower $1000, with four origination points, taken out of the cash value of the loan (ie the check is actually for $960). The loan is at 8.25% (the current prime rate) monthly, with a term of 24 months, amortized according to the Rule of 78. Larry then enters into a credit default swap with Izzy Insurer for the asset value of the loan, plus $97 (the last month's payment) for 100 bps/month, for the entire term of the loan. Assuming Larry starts w/ a $4000 bank balance, write a copy of his books before he recieves the first loan payment or pays the CDS monthly fee.
Here's my answer:
Cash Item Dr Cr Bal
---------------------------------------------------------- Start 0 Bank Bal 4000 4000 Loan check 960 3040
Assets Item Dr Cr Bal
-------------------------------------------------------------- Start 0 Bank Bal 4000 (4000) Loan Value 1000 (5000)
A/R Item Dr Cr Bal
--------------------------------------------------------------- Start 0
1LoanPay 96.97 96.97
A/P Item Dr Cr Bal
------------------------------------------------------------------- Start 0 AccrCDS 10.97 (10.97)
Accr. Principal Item Dr Cr Bal
----------------------------------------------------------------- Start 0
1LoanPr 9.21 9.21
Accr. Interest Item Dr Cr Bal
------------------------------------------------------------------ Start 0
1LoanInt 106.18 (106.18)
Expenses Item Dr Cr Bal
--------------------------------------------------------------- Start 0 CDS 10.97 10.97
Income Item Dr Cr Bal
-------------------------------------------------------------- Start 0 OrigFee 40 (40)
Trial Balance Item Dr Cr
------------------------------------------------------ Assets 5000 Bank Bal 4000 Loan check 960
1LoanPay 96.97 AccrCDS 10.97
1LoanPr 9.21
1LoanInt 106.18 CDS 10.97 OrigFee 40
There's a discrepancy of $2000. What have I done wrong? Oh, and about why Accrued Principal has a debit of 9.21, that's what my calculator says. The principal should increase. Here: