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made, petitioner credited its deferred interest income
account by the full amount of the interest to be earned
over the term of the loan. However, petitioner did not
debit that account or otherwise take interest income into
account for book or tax purposes until the loan was paid
off or it repossessed the automobile securing the loan.
In effect, petitioner did not accrue interest with respect
to any loan that was outstanding at the end of the year.
Respondent determined that petitioner's method of
accounting for interest income did not clearly reflect
income. Pursuant to respondent's authority under section
446(b), respondent further determined an increase in the
income reported by petitioner in 1990 in the amount of
$4,681,147 to effect a change in petitioner's method of
accounting for interest.
As described above, respondent's adjustment is
composed of two elements. First, based upon petitioner's
records of all loans outstanding at the end of 1990,
respondent determined that the interest earned on those
loans through the end of 1990 is $3,084,179. Respondent
computed this amount by taking interest into account
ratably over the life of each of the subject loans. The
parties have stipulated that the following is a summary
of the earned interest on loans outstanding at the end of
1990 as computed by respondent:
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