Accounting for the New Agency Test in Quicken | P2P Lending, Peer to Peer Lending, People to People Lending

Recently it was revealed that Prosper is Going To Sue Deadbeat Borrowers and that lenders on the loans would be given a choice between taking a guaranteed upfront buyout at the price of the last junk debt sale or participating in the loan pool suit and reaping the consequences or rewards depending on the outcome.

I have no idea what the outcome will be, but either way I would need to account for the real world situation in Quicken as accurately as possible. If you take the buyout your accounting is fairly straight forward: Debt Sale Accounting via Quicken.

However, for reasons that are more informational than financial I am choosing to participate in the loan pool and therefore need to account for the process.

(This is not clean accounting, but at the end of the process it will accurately reflect what happened.)

Step 1: Write off all principal in the pool as worthless. For me, this amounts to a sale transaction of 325.26 shares at a price of $0 per share dated on the day Prosper marks the loans defaulted.

Assuming the loan pool produces net recoveries for each recovery amount:

Step 2: Adjust the Step 1 transaction reducing the number of shares in the sale transaction by the amount of the recovery at a 1:1 ratio of shares to dollars. If the net amount recovered equals or exceeds the original principal amount simple delete the Step 1 transaction.

Step 3: Enter a new sale transaction dated for the recovery payment date with the number of shares equal to the number of dollars recovered and a sale price of $1 per share.

This will result in no assumptions about recovery in Quicken. On Day 1 my quicken account will look like it lost $325.26 of assets and value. My quicken ROI will take an immediate hit, but potentially this loss will be removed over time.

For me, the $33.11 I have to “pay” to be part of the pool is worth it for the information. I am glad it is not a larger amount as I do not know what the eventual outcome will be.

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