- 35 -
b. GMAC's Basis in a Rate-Supported RISC
In the retail rate support example, GMAC's book and tax
basis in the rate-supported RISC was $9,500.
c. GM
In the retail rate support example, GM accounted for its
retail rate support payment liability as follows: When GM's
liability first arose, GM recorded a $500 sales allowance and a
$500 accrued liability to GMAC. When GMAC actually purchased the
RISC from an independent GM dealer and GM made the $500 retail
rate support payment to GMAC, GM eliminated the $500 accrued
liability and recorded a cash reduction of $500. The net effect
on GM's balance sheet was a $500 reduction in GM's cash balance.
2. Nonrate-Supported RISC
a. RISC Bearing a Market Interest Rate
Suppose a retail customer's RISC had a face amount and fair
market value of $10,000 and stated interest of $2,500 to be paid
by the customer over the term of the RISC. GMAC purchased the
RISC for $10,000, and it recorded the following items on its
books:
Retail customer receivable 1$12,500
Cash (10,000)
Unearned income 2(2,500)
1 This figure included the $10,000 face value of the
RISC and $2,500 interest stated in the RISC.
2 This figure equaled the face amount of the RISC plus
the stated interest (i.e., the total amount that the
Page: Previous 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 NextLast modified: May 25, 2011