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Under petitioner's method of accounting, the amount of
interest earned during the year is reflected as a decrease
(debit) in the balance of the deferred interest account.
The ending balance of the deferred interest account is
nothing more than the interest that potentially will be
earned on petitioner's portfolio of loans in the future.
Therefore, it was necessary for respondent's agent to
decrease the ending balance of petitioner's deferred
interest account by the additional earned interest that she
computed for the year. However, respondent's agent found
that there was a discrepancy in the ending balance of
petitioner's deferred interest account. According to
petitioner's balance sheet, the balance was $7,772,543 but,
according to petitioner's loan ledger cards, the balance
was $6,175,575, or $1,596,968 less. Obviously, the same
discrepancy is found after the account is reduced by the
amount of additional earned interest computed by
respondent, as shown in the following schedule:
Petitioner Respondent Difference
Deferred interest--ending balance $7,772,543 $6,175,575 $1,596,968
Additional interest (3,084,179) (3,084,179) --
Deferred interest--corrected balance 4,688,364 3,091,396 1,596,968
The above difference of $1,596,968 is the amount of
petitioner's deferred interest that is not substantiated by
petitioner's loan ledger cards. Respondent determined that
this amount represents additional interest that petitioner
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