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face amount of the RISC plus the below-market interest stated in
the RISC that was to be paid over the term of the RISC (below-
market stated interest). The rate support receivable was equal
to the retail rate support payment GM would make to GMAC.
GMAC also recorded two offsetting credit amounts: (1) A
cash reduction in the amount paid to the independent GM dealer to
purchase the rate-supported RISC, and (2) a contra asset called
"unearned income".
The unearned income account balance equaled the face amount
of the RISC plus the below-market stated interest (i.e., the
total amount the retail customer was to pay GMAC over the term of
the RISC) minus the fair market value of the note, based on
GMAC's buy rate, at its time of purchase. Thus, the unearned
income account included the discount income GMAC earned on a
rate-supported RISC and the below-market stated interest. The
retail rate support payment, however, was not included in the
unearned income account.
The contra asset account was designed so that the RISC was
reported in GMAC's published financial statements at its fair
market value at the time of its purchase.
When GMAC received the retail rate support payment, GMAC
increased its cash by the amount of the retail rate support
payment and eliminated the rate support receivable. The unearned
income account remained unchanged.
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