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 Wireless) 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 (formerly 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 fair value?

c. AT\&T adjusted the purchase price allocation for Bell South subsequent to the acquisition. Most of the allocation relates to an increased value placed on Bell South's equity investment in AT\&T Mobility due to "increased 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 "customer lists and relationships" or to goodwill?

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Bell South Purchase Price Allocation ($ millions) Assets acquired Current assets... Property, plant and equipment.. Intangible assets not subject to amortization Trademark/name... Licenses..... Intangible assets subject to amortization Customer lists and relationships.. Patents Trademark/name. Investments in AT&T Mobility Other investments.. Other assets. Goodwill... Total assets acquired.. Liabilities assumed Current liabilities, excluding current portion of long-term debt... Long-term debt... Deferred income taxes. Postemployment benefit obligation Other noncurrent liabilities Total liabilities assumed. Net assets acquired.. As of 12/31/06 Adjustments As of 12/29/07 $ 4,875 18,498 330 214 9,230 100 211 32,759 2,446 11,211 26,467 106,341 5,288 15,628 10,318 7,086 1,223 39,543 $ 66,798 $6 100 225 (25) 2,039 (3) (168) (1,554) 620 (427) (4) (89) 163 941 584 $36 $ 4,881 18,723 330 314 9,205 100 211 34,798 2,443 11,043 24,913 106,961 4,861 15,624 10,229 7,249 2,164 40,127 $ 66,834