A federal agency was established to provide loan guarantees for students. At the beginning of Year 1 the agency guarantees $100,000 of student loans. The payments that the agency estimates it will have to make to lenders as a result of student defaults are as listed below. The agency uses a discount rate of 6 percent.
REQUIRED:
Prepare the necessary journal entries to record the loan guarantee expense in Year 1 and the payment to the lenders in Year 2 of $400 on defaulted loans. If no entry is required, write "No entry required." 
Definitions:
Money Supply
The complete collection of economic resources in money form available at a distinct period within an economy, which includes cash—both coins and notes—and amounts held in banking accounts for checking and savings.
Potential Output Level
The highest level of real gross domestic product (GDP) that can be sustained over the long term without increasing the rate of inflation.
Identity
The distinct characteristics, personality, or qualities that make an individual or group unique.
Quantity Theory of Money
A theory that relates the money supply to the price level and the rate of economic growth.
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