Interpreting Equity Method Investment Footnotes
On December 29, 2006, AT&T acquired Bell South Prior to the acquisition, AT&T and Bell South jointly owned AT&T Mobility (formerly known as Cingular Wreless) and each accounted for its investment in AT&T Mobility under the equity method. AT&T purchased Bell South for $66,834 million and reported the following allocation of the purchase price in its 2007 10-K:
a. Describe how AT&T accounts for its investment in AT&T Mobility (former ly Cingular Wireless) following its acquisition of Bell South.
b. AT&T had the following disclosure in its 2007 10-K regarding the reporting of its investment in AT&T Mobility: ;;We recorded the consolidation of AT&T Mobility as a step acquisition, retaining 60% of AT&T Mobility's prior book value and adjusting the remaining 40% to fair value.” Why is AT&T only adjusting 40% of its investment in AT&T Mobility to fairvalue?
c. AT&T adjusted the purchase price allocation for Bell South subsequent to the acquisition. Most of the allocat ion relates to an increased value placed on Bell South's equity investment in AT&T Mobility due to uincreased value of licenses and customer lists and relationships acquired.” Why did the increase in the allocation of the purchase price to Bell South’s investment in AT&T Mobility decrease the allocation to goodwill? How will this increase in allocation to the equity investment impact AT&T’s income statement?
d. More than half of the purchase price is allocated to intangible assets and goodwill. How is the fair value of customer lists and relationships estimated? How is the fair value of goodwill estimated? Why does it matter whether the allocation of the purchase price for intangible assets relates to ucustomer lists and relationships” or to goodwill?
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