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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Interest Income and Nonrefundable Loan Fees

The interest method should be used to account for interest income in accordance with FAS 91, Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. Under this method, often called the actuarial method, interest on installment loans is computed and accrued over the lives of the loans to arrive at constant interest rates throughout the loans' lives. Use of this method produces loans that are carried at amounts equal to future receipts discounted at original implicit interest rates. The accounting for nonrefundable loan fees is also covered in FAS 91. (See the treatment of this area under the section on Banking and Thrift.)

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