The AOL case

If all the capitalized subscriber acquisition costs (SAC) were written off as of year end 1995, show the journal entry that would accomplish this and also illustrate how the 1995 balance sheet would have been affected (using example dollar amounts).

If all the SACs which had been incurred in 1995 had been expensed, illustrate how the 1995 income statement would have been affected (using after-tax dollar amounts).In your explanation be sure to clearly reference your amounts.

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (in thousands, except per share data) Year Ended June 30, 1995 1994 199 1992 1991 Statements of Operations Online service revenues Other revenues Total Revenues Income Qoss) from operations Income (loss) before extra- S358,498 35,792 394,290 (19,294) S100,993 14,729 115,722 4,608 $38,462 13,522 51,984 1,925 $26,226 12,527 38,753 3,685 $19.515 10,646 30,161 ordinary items (33,647) (33,647) 2,550 2.550 399 1,532 2,344 3,768 1,100 Net income (loss) (I) Income (loss) per common share Income (loss) before extra ordinary item S 0.07 $0.06 Net income Qoss) Weighted average shares S 0.07 $0.05 $ 0.09 outstanding 33,986 34,208 29,286 22,828 19,304 1994 199 1992 199 .3 Balance Sheet Data: Working capital (deficiency) Total assets Total debt As of June 30, S (456 $47,890 S10,498 $12,363 S(966) 406,464 . 154,584 9,302 98,297 39,279 2,959 23,785 31,144 21,810 Stockholders' equity (deficiency)217,944 11,534 1,865 (8,623) 2,672 Other data (at flScal year end) Subscribers 903 or acqured research and develop 3,005 182 for merger 1) Net loss in the f scal year ended June 30. 995 expense. See Note 3 of the Notes to Consolidated ER charges of $50.3 gg R and$22 g 9 Statements. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA (in thousands, except per share data) Year Ended June 30, 1995 1994 199 1992 1991 Statements of Operations Online service revenues Other revenues Total Revenues Income Qoss) from operations Income (loss) before extra- S358,498 35,792 394,290 (19,294) S100,993 14,729 115,722 4,608 $38,462 13,522 51,984 1,925 $26,226 12,527 38,753 3,685 $19.515 10,646 30,161 ordinary items (33,647) (33,647) 2,550 2.550 399 1,532 2,344 3,768 1,100 Net income (loss) (I) Income (loss) per common share Income (loss) before extra ordinary item S 0.07 $0.06 Net income Qoss) Weighted average shares S 0.07 $0.05 $ 0.09 outstanding 33,986 34,208 29,286 22,828 19,304 1994 199 1992 199 .3 Balance Sheet Data: Working capital (deficiency) Total assets Total debt As of June 30, S (456 $47,890 S10,498 $12,363 S(966) 406,464 . 154,584 9,302 98,297 39,279 2,959 23,785 31,144 21,810 Stockholders' equity (deficiency)217,944 11,534 1,865 (8,623) 2,672 Other data (at flScal year end) Subscribers 903 or acqured research and develop 3,005 182 for merger 1) Net loss in the f scal year ended June 30. 995 expense. See Note 3 of the Notes to Consolidated ER charges of $50.3 gg R and$22 g 9 Statements