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TOPIC: Capitalization Policy
CHAPTER LINK: Chapter 8
America Online:
On-line or Off-track
America Online, Inc. (AOL) offers the largest consumer on-line service in the United States. Subscribers to its on-line service receive a broad line of products, including e-mail, on-line conferences, entertainment, software, computing support, an extensive newsstand of electronic magazines and newspapers, and seamless access to the Internet. Acquisitions in Year 5 and Year 6 permit it to offer a vertically integrated product and service line for users of the Internet.
The Company aggressively attracts new subscribers to its on-line service through independent marketing programs, such as direct mail, disk inserts and inserts in publications, and advertising. It has also entered into co-marketing agreements with numerous personal computer hardware, software, and peripheral production companies. These companies bundle AOL software with their products, thus facilitating easy trial use of the company’s services. The company has also entered into co-marketing agreements with certain of its media partners to market directly to and cater to the needs of specific audiences. AOL utilizes specialized retention programs designed to increase customer loyalty and satisfaction and to maximize customer subscription life. These retention programs include regularly scheduled on-line events and conferences, the regular addition of new content, services, and software programs, and on-line promotions of upcoming on-line events. The company also provides a variety of support mechanisms such as telephone customer support services.
Exhibit 1 presents comparative balance sheets, Exhibit 2 presents comparative income statements and Exhibit 3 presents comparative statements of cash flows for AOL for the Year 3 through Year 6 fiscal years. Selected notes to the financial statements appear after Exhibit 3.
required
a. Describe the rationale that the Company’s would
CHAPTER LINK: Chapter 8
America Online:
On-line or Off-track
America Online, Inc. (AOL) offers the largest consumer on-line service in the United States. Subscribers to its on-line service receive a broad line of products, including e-mail, on-line conferences, entertainment, software, computing support, an extensive newsstand of electronic magazines and newspapers, and seamless access to the Internet. Acquisitions in Year 5 and Year 6 permit it to offer a vertically integrated product and service line for users of the Internet.
The Company aggressively attracts new subscribers to its on-line service through independent marketing programs, such as direct mail, disk inserts and inserts in publications, and advertising. It has also entered into co-marketing agreements with numerous personal computer hardware, software, and peripheral production companies. These companies bundle AOL software with their products, thus facilitating easy trial use of the company’s services. The company has also entered into co-marketing agreements with certain of its media partners to market directly to and cater to the needs of specific audiences. AOL utilizes specialized retention programs designed to increase customer loyalty and satisfaction and to maximize customer subscription life. These retention programs include regularly scheduled on-line events and conferences, the regular addition of new content, services, and software programs, and on-line promotions of upcoming on-line events. The company also provides a variety of support mechanisms such as telephone customer support services.
Exhibit 1 presents comparative balance sheets, Exhibit 2 presents comparative income statements and Exhibit 3 presents comparative statements of cash flows for AOL for the Year 3 through Year 6 fiscal years. Selected notes to the financial statements appear after Exhibit 3.
required
a. Describe the rationale that the Company’s would