Aol Case Study Essay

If the depreciation method changes from straight-line method to accelerated method then, depreciation expense would be increase and net income would decrease. The EPS ratio would represent a loss of $0.19 per share.

earnings. The income from the sale fueled a further diversification of the company, but also a

indirect costs associated with obtaining a customer may be deferred and amortized over the revenue stream associated with that contract.” So instead of recognizing these expenses immediately, the portion of the unused capacity was able to be expensed later when the revenue was realized. This might have been an O.K. practice in accordance of GAAP if the capitalization of these line costs

Shareholders were led to believe that CA was more profitable than it was, and consequently suffered enormous losses. They had either paid more than they should have for the stock, or held on to it when, if they had known the truth, they would have sold it. 12 This extra compensation was at the expense of shareholders. 13 Richards’ actions would be considered unethical under the utilitarianism position, as his actions harms others, and under deontological positions, as he did not follow rules. In this sense, Richards’ actions would be regarded as much more serious under a deontological position, than under a teleological-parochialism position. 14 Accounting flexibility, or financial reporting choice, may also

There were two accounting policies used by AOL that were considered aggressive, as well as controversial. The first was to amortize its software development costs and the second was to capitalize subscriber acquisition costs.

5) Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2014. The equipment was seven-year recovery property, and Herelt used the half-year convention to compute MACRS depreciation. Compute Herelt’s MACRS depreciation for 2016 if it disposes of the equipment on February 9, 2016. (part c)

d. WorldCom capitalized $3.8 billion in line cost expenses. These were transactions that involved payment to local telephone companies to use their fiber optic network. These line costs are also called access charges or transport charges and are an operating cost. These costs do not meet the definition of an asset as described in FASB Statement of Concepts No. 6. Telecommunication companies can capitalize the costs and labor of installing lines or cable; however, they should not capitalize fees paid to another company for the use of their lines.

The first would be that instead of capitalizing the $210,000 to set up displays to promote the line, these displays could have been recorded as an Advertising Expense. One of the IFRS criteria for something to be considered an asset is that the benefit must be reasonably measurable. When it comes to anything done for the purpose of advertisement or promotion, it is hard to measure the benefit and that is why this cost could have been expensed rather than capitalized. However, by recording this event as an expense this would mean that Athina’s net income would have been overstated by $210,000 and that is an undesirable outcome for the national chain.

ASC 805-10-25-23 indicates that acquisition related costs shall account as expenses in the period in which the costs are incurred and received. However, cost to issue debt or equity securities shall be recognized in accordance with other applicable GAAP. In our case, we assume that acquisition cost is not allocated for issuing debt or equity securities.

When entering a foreign market, as AOL entered the Brazilian Market, certain rules and regulations have to be followed. In case of AOL the controllable and uncontrollable elements are playing a significant role.

Answer: Laura Martin felt, and with reason that the EBITDA multiplier and the DCF analysis did not account for this possible revenue stream which she named “Stealth

The author thanks Professors Martha Howe, Donna McConville, Ari Yezegel, participants at the 2013 North American Case Research Association Annual Conference, the 2013 American Accounting Association Northeast Region Annual Meeting, and 2014 American Accounting Association Annual Meeting for their comments and suggestions on the earlier versions of the case. Comments and suggestions of the editor, associate editor, and two anonymous reviewers are also gratefully acknowledged. Supplemental material can be accessed by clicking the links in Appendix A.

18. Companies that expense R&D costs to the income statement rather than capitalize them on the balance sheet would have:

However, many companies also amortize so-called ‘one-time expenses’ by listing them as a capital expense (on C/F) and paying the cost by amortization, hence improving the company’s net income.

the  strategic  management  accounting  technique  used  and  Carlianne will provide  an  analysis of our results.  Courtney