IDCC Premium Board (IDCC)

[The Count]

Accounting for the Pantech agreement

I do not know exactly how the transaction was structured. Based on information posted, my understanding is that IDCC received (in millions) Pantech stock worth $22, $15 cash and are owed $75. The revenue will be recognized evenly over 28 quarters (seven years). I also assumed for simplicity that IDCC earned a full quarter of revenue this quarter. Based on the above, the transaction would be booked as follows (Debit, Credit):

Cash .................. 15
Deferred Revenue ........ 15
To record cash payment at signing of contract

Other LT Assets (Investment in Pantech)... 22
Deferred Revenue (Liab on bal sheet)......... 22
To record stock received at signing of contract

Accounts Receivable ... 75
Deferred Revenue .............75
To record balance of contact due from Pantech

Deferred Revenue ....... 4
Revenue (on P&L).......... 4
To record Revenue earned for the quarter (assumes a full qtr)

The end result is that IDCC has booked assets of 15 cash, 75 A/R, 22 LT Investment in Pantech, a balance sheet liability of 118 of deferred revenue and income statement revenue of 4. The liability for deferred revenue is the best kind of liability. IDCC's "liability" is to allow Pantech to use IDCC's IP for the next seven years.

The investment is Pantech will be carried at cost unless there is a writedown required - olddog explained it well in his reply to you. We are not recognizing the a portion of the stock each quarter. The only entries related to this in the future are the recognizing of $4 Revenue out of Deferred Revenue each quarter for the life of the contract (a recurring entry just like the last entry above) and debiting cash and crediting A/R as payments are received. Other possible entries would be if Pantech loses value there would be a debit to loss on investment and credit to the LT Inv-Pantech. When Pantech stock is sold, debit cash, credit LT Inv-Pantech and credit/debit gain/loss on investment. If Pantech were to default on the payments, then there would be a credit to AR and a debit to deferred revenue, and future entries to revenue would be reduced accordingly.

Ronny, feel free to correct or clarify. Nice timing of your buy. Now I finally understand why someone would watch a stock and participate in a forum even if he doesn't own it. He might be waiting for a great buying opportunity. Or he could just be a class act helping folks out in cyberspace. Or both.