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Technology Stocks : Ascend Communications (ASND)
ASND 209.02-0.7%Nov 24 3:59 PM EST
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To: Clare who wrote (56177)10/20/1998 10:55:00 AM
From: Jeff Call  Read Replies (1) of 61433
 
I used to work for MOT, and they do a lot of customer financing, especially in the wireless infrastructure business. A lot of revenue is also deferred until the infrastructure is built out and performs to specifications.

Let me give some examples.

CASH SALE:
A typical sale contract (cash) would be reported as follows:

CREDIT: SALES 30
CREDIT: DEFERRED REVENUE 70
DEBIT: CASH 100

As a contract is built out and certain milestones are completed (such as first wireless call completed, etc.), an entry is made to move dollars from Deferred Revenue to Sales as follows:

CREDIT: SALES 70
DEBIT: DEFERRED REVEUNE 70

CREDIT SALE
A typical Motorola sale contract (financing) would be as follows:

CREDIT: SALES 30
CREDIT: DEFERRED REVENUE 70
DEBIT: NOTE RECEIVABLE 100

However, if the debt repayment were in question, the note would automatically be moved to bad debt in order to be conservative on the books, as follows:

CREDIT: ALLOWANCE FOR BAD DEBT 100
DEBIT: BAD DEBT EXPENSE 100

Note, there could still be a very good chance that the dollars can be collected, however, to be conservative it should be written off (or an allowance account set up) in the period the debt recovery comes into question.

If the debt is never recovered this entry is made:

CREDIT: NOTE RECEIVABLE 100
DEBIT: ALLOWANCE FOR BAD DEBT 100

If the debt is collected in the future, the following is done:

CREDIT: BAD DEBT EXPENSE 100
CREDIT: NOTE RECEIVABLE 100
DEBIT: CASH 100
DEBIT: ALLOWANCE FOR BAD DEBT 100

What Ascend did for their financing is ULTRA CONSERVATIVE and conforms to GAAP. I would have absolutely no question "AS TO THE QUALITY OF THE EARNINGS" either in the current period or future period based upon how they treated this financing contract. I also tried to give an example of what deferred revenue means.

BTW I am a non-practicing CPA.

Any analyst who would downgrade ASND based upon how they handled this financing (and I believe ASND indicated that financing is involved in less than 5% of their contracts) is a complete idiot.
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