The Boston Metropolitan Bank which started operations a year back wants to estimate its loan loss provision for the year 2009. The loan loss provision is
intended to capture the expected losses that the bank is expected to incur due to loan defaults. On Dec. 31st 2008 the debit balance in the Provision account
was $500000. Given the rapidly changing U.S. economy the bank knew that using a simple percentage of loan assets based on past experience to estimate its
loan loss provision may not be appropriate. Therefore it wants to simulate its expected losses due to loan defaults to arrive at a more realistic measure of
the loan loss provision. The Bank knows that while agricultural loan losses often tend to be normally distributed retail loan defaults follow a triangular
distribution. The bank has the following data available at its disposal.
Max Loss Min Loss Most Likey Loss Mean Std. Dev
Agricultural Loans $1m $60000 $500000 200000
Retail Loans $700000 $75000 $300000
What journal entry should be entered on Jan 1st 2009 to record the loan
loss provision?