SECTION 6. EXAMPLE

.01 T properly adopts the method described in section 5 of this revenue procedure for all the loans that it acquires that are described in Category (1) in section 4.02 of this revenue procedure. .02 For T ’s first month in operation, it acquired at origination loans in Category (1) with an aggregate stated principal amount of $10,000,000 at the time of acquisition. The sum of the discount with which these loans were acquired is $400,000. At the end of the month, $9,000,000 was the outstanding stated principal amount on the Category (1) loans still held by T . Thus, the discount recognized during the month is $40,000. That figure is derived as follows:

R = (DStart + DCurrent) x ( [PStart + PCurrent – PEnd] / [PStart + PCurrent] )

= ($0 + $400,000) x ([$0 + $10,000,000 $9,000,000] / [$0 + $10,000,000]) = ($400,000) x ($1,000,000 / $10,000,000) = $400,000 x 0.1 = $40,000

The amount of unrecognized discount at the end of the month is $360,000. This figure is derived as follows:

DEnd = DStart + DCurrent – R

= $0 + $400,000 – $40,000 = $360,000

.03 In the second month of operation, T acquired at origination $23,000,000 in Category (1) loans with a total of $760,000 in discount at the time of acquisition. At the end of the month, $28,000,000 was the outstanding stated principal amount on Category (1) loans still held by T. Thus, the discount recognized during the second month is $140,000. This figure is derived as follows:

R = (DStart + DCurrent) x ( [PStart + PCurrent – PEnd] / [PStart + PCurrent] )

= ($360,000 + $760,000) x

($9,000,000 + $23,000,000 – $28,000,000) / ($9,000,000 + $23,000,000)

= $1,120,000 x ($4,000,000 / $32,000,000)

= $1,120,000 x 0.125

= $140,000

The amount of unrecognized discount at the end of the month is $980,000 of discount. This figure is derived as follows:

DEnd = DStart + DCurrent – R

= $360,000 + $760,000 – $140,000

= $980,000