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When GMAC acquired a rate-supported RISC from an independent
GM dealer, GMAC did not record the rate support payment as
income. GMAC recognized the unearned income as earned income on
a monthly basis as the retail customer made payments over the
term of the RISC. Each month GMAC also reduced the unearned
income account on its balance sheet in an amount equal to the
amount it recognized as earned income on its income statement.
B. GMAC's Accounting for Nonrate-Supported RISC's13
GMAC accounted for the acquisition of a nonrate-supported
RISC, whether it carried a market rate of interest or a below-
market rate of interest, as follows: When GMAC purchased the
RISC, it recorded as an asset on its books a retail customer
receivable equal to the face amount of the RISC plus the interest
stated in the RISC that was to be paid over the term of the RISC.
GMAC also recorded two offsetting credit amounts: (1) A
cash reduction in the amount paid to the independent GM dealer to
purchase the RISC, and (2) unearned income equal to the face
amount of the RISC plus the stated market stated interest (i.e.,
the total amount the retail customer paid GMAC over the term of
the RISC) minus the fair market value of the note at the time of
its purchase. Thus, the unearned income account included the
13 For an example, see infra pp. 35-36.
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