...
| Debit | Credit |
Investment Receivable | 10,000 |
|
Amortization Income |
| 500 |
Cost |
| 5,000 |
Cap Gain |
| 4,500 |
Recognition of Paydown Loss/Recovery
For ABS paydowns that have proceeds and principal loss factors in the same coupon cycle the principal loss factors are applied first, followed by the paydown cash received. Apply loss factor quantity as a straight par reduction to the extent that there is sufficient unamortized discount to absorb the quantity without reducing any deferred market discount or original cost.
Unamortized discount = Par – Original Cost – Deferred Amortization
If the loss quantity is greater than the unamortized discount then apply the remaining quantity to the accumulated deferred market discount. This amount is stored on the open lot (Prior Deferred Amort Reduction Local/Base).
If the loss quantity is greater than the total unamortized discount and accumulated deferred market discount the lot will be at par before applying the remaining par quantity. Apply the remaining quantity to cost and Short Term Loss. This amount is stored on the open lot (Prior Cost Reduction Local/Base).
Once the principal loss factor has been applied and reduced the appropriate quantity (and deferred market discount and cost when applicable), the cash portion of the paydown should be applied to the position in the manner described in the prior section.
Unamortized Market Discount (Mkt Dis) is not a stored value in Eagle but is displayed as a balance in the example below for illustrative purposes.
Example 4 - Loss factor is less than the amount of unamortized discount (excluding deferred amortization)
Apply full unit reduction as a decrease in quantity and do not impact the remaining amount of deferred market discount.
No ledger entries are required for the principal loss component as there is no impact on cost.
Pre Paydown Totals