Derivatives & Hedging

Question 1

Servicing Asset

Answer 1

Recognize at cost 120,000
100,000 earned / 400,000 expected in year one = 25%
Amortize 120,000 * .25 = 30,000 year 1

Question 2

Loss on transfer

Answer 2

Carrying value 500,000
Fair Value 450,000
Cash Recieved 425,000
Asset Retained 45,000 / 450,000 = 10%
500,000 * .90 = 450,000 - 425,000 = 25,000 Loss