The Business Development Corporation (BDC), a federal agency (ﬁctitious), makes loans to high-tech companies that satisfy speciﬁed criteria. The loans are intended to encourage research and development and are made at rates substantially below market.
In 2014 the BDC made a loan of $100,000 to Interface Networks, Inc. The interest rate was 6 percent and the loan was payable over a three-year period in equal installments of $37,411. At the time of the loan, prevailing Treasury interest rates for loans of comparable maturities were 10 percent.
1. What was the amount of the loan subsidy?
2. How and when should the agency recognize the value of the subsidy? Explain.
3. Prepare a journal entry to record the loan and recognize the subsidy.