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to the sum of the principal amount of the loan and the
total interest that would accrue over the life of the loan.
They credited petitioner's "Cash" account in an amount
equal to the principal of the loan and credited "Deferred
Interest Income" in an amount equal to the interest to be
paid by the customer over the term of the loan.
As mentioned above, after the loan was initially
recorded, petitioner's employees entered the date and
amount of each payment made by the customer on the ledger
card for the loan. Under petitioner's method of account-
ing, however, petitioner did not accrue interest income
while the loan was outstanding and the customer was making
payments. Interest was not accrued until the principal
amount of the loan was fully paid or petitioner repossessed
the automobile securing the loan. At that time, petitioner
recognized for book and tax purposes all of the interest
that had been paid on the loan.
As of the end of 1990, petitioner had approximately
1,300 loans outstanding. According to petitioner's balance
sheet at the end of 1990, there was a debit balance of
$17,315,315.59 in petitioner's loan receivable account and
a credit balance of $7,772,543 in petitioner's deferred
interest income account. Thus, at the close of 1990,
petitioner's balance sheet reflected interest of $7,772,543
to be realized after 1990 on petitioner's portfolio of
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