OK let's say I made a $2500 loan to my friend Joey, at 20% compounded monthly. Let's also say I had a credit default swap on Joey's loan with my friend Dave, of 1% of the amount of Joey's loan, or $25. He also makes a payment of $300. Here's the books:
Cash Dr Cr Net
---------------------------------------------------- Start 0.00 Loan 2500.00 2500.00 CDS 25.00 2525.00 Payment 300.00 2225.00
Accts. Payable Dr Cr Net
----------------------------------------------------- Start 0.00 CDS 25.00 25.00
Accts. Recievable Dr Cr Net
--------------------------------------------------------- Start 0 Payment 300.00 300.00
Assets Dr Cr Net
----------------------------------------------------------- Start 0.00 Loan 2500.00 2500.00
Interest Accrual Dr Cr Net
---------------------------------------------------------------------------- Start
0.00 Interest 500.00 500.00
Income Dr Cr Net
---------------------------------------------------------- Start 0.00 Interest 500.00 500.00
General Ledger Dr Cr
--------------------------------------------------------- Cash 2225.00 Accts. Payable 25.00 Accts. Recievable 300.00 Assets 2500.00 Interest Accrual 500.00 Income 500.00
Now, what if I sold this loan to say, Bank of America (just play along), for a 20% premium, or $3000, how would I change my books to reflect this? Or sold it for a 20% discount, or $2000. What's the effect on the books? Thanks!!!!!