America Online Inc Case Study Essay

3. Was AOL’s policy to capitalize subscriber acquisition costs justified prior to 1995? Ans: AOL’s accounting policy was labeled aggressive and capitalized its subscriber acquisition costs when its archrival CompuServe didn’t.

AOL’s biggest expenditure was the cost of attracting new subscribers and maximizing shareholders’ value: 1. Separate registration numbers and passwords were issued to customers. They cost more than $40 per new subscriber in 1994. 2. AOL aggressively marketed its online service both directly and indirectly. 3. To retain new subscribers and increase customer loyalty & satisfaction, AO

Don't use plagiarized sources. Get Your Custom Essay on
America Online Inc Case Study Essay
Order Essay

The noteable accounting procedures followed by AOL were as follows: :a.

AOL’s amortization period for subscriber acquisition costs was about 15 months, such aggressive accounting was attributed to the bundling & direct mail marketing practices b. During September 1995, the company modified the components of subscriber acquisition costs as incurred Analysis

a. It is not advisable for AOL to capitalize the marketing costs because in 1990s Web was being established. This would definitely impact the sales. Instead of amortizing the Acquisition Costs for 15 months, if we treat it as single lumpsum cost, the Income statement shows a loss for the period.

Capitalizing the expenditure for 2 years contained an implicit assumption for the coming two years. This was unlikely with the online industry as it had acquired most of its customers in the last 36 months,

If AOL were to write off all capitalized subscriber acquisition costs the effect on the 1995 balance would be a $77,229,000 reduction in other assets and stockholders’ equity. If all the subscriber acquisition costs incurred in fiscal year 1995 were expensed in 1995, the effect on the income statement would be an increase in marketing expense of $50,837,000 and an increase in net loss of $50,837,000

Grand Paper Writers
Order NOW For A 10% Discount!
Pages (550 words)
Approximate price: -

Our Advantages

Plagiarism Free Papers

All papers are written by the best professional writers to ensure 100% originality. We always provide plagiarism reports whenever we deliver completed papers.

Free Revisions

All papers by Grand Paper Writers are completed and submitted on time. This timely delivery of papers gives you time to go through the paper before the official deadline.


As an additional service, we will provide a title page that precedes the contents of your paper. Here, you will provide your personal details.


We also ensure that we provide an extra page for the references or bibliographies following referencing rules.

Originality & Security

At, we guarantee students for the provision of security and original work. All your personal information is handled with confidentiality and is not shared with third parties. Additionally, we ensure that we provide original content with accompanying plagiarism reports to show originality.

24/7 Customer Support

Our customer support team is always available 24/7 to provide instant responses to any queries raised by students.

Try it now!

Calculate the price of your order

We'll send you the first draft for approval by at
Total price:

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services has the best professional essay writers for quality services.


Flexible Pricing

Here, a, we do not compromise on the time of our clients. We always deliver all completed papers on or before the deadlines.


Admission Help & Client-Writer Contact provides an interactive portal where students can communicate directly to their writers.


Paper Submission

Here, a, we do not compromise on the time of our clients. We always deliver all completed papers on or before the deadlines.


Customer Feedback appreciates feedback from our clients to help us improve the delivery of essay writing services. As such, we are constantly changing our policies to ensure maximum customer and writer satisfaction.