Final answer:
The correct entry for incurred but unpaid interest is Debit Interest Expense; Credit Interest Payable. In the secondary market, the value of a loan is influenced by the borrower's payment history and changes in the broader economy's interest rates.
Step-by-step explanation:
When interest is incurred but not yet paid, the correct journal entry would be option (c): Debit Interest Expense; Credit Interest Payable. This is because the company has incurred the expense over the period, increasing its liabilities since the interest is not yet paid. Hence, the interest expense is recognized, and a corresponding payable is created.
The money listed under assets on a bank balance sheet might not actually be in the bank because of the fractional-reserve banking system, which means that the bank only holds a fraction of its deposits in reserve, lending the rest out. When buying loans in the secondary market:
For a borrower who has been late on a number of loan payments, you may pay less because the risk of default is higher.
If interest rates in the economy have risen since the loan was made, a buyer may pay less for the loan because the existing loan's rate may be lower than the current market rates, making it less attractive.
If the borrower is a firm that has declared high profits, you might be willing to pay more for the loan because the firm's improved financial position suggests a lower risk of default.