AT&T Inc. is a global provider of telecommunications, media, and technology services. The following information was taken from AT&T’s Form 10-K for the year ended December 31, 2018.

Required:

1. What journal entry did AT&T make to capitalize its 2018 interest?

2. Compute the percentage of interest that was capitalized each year from 2016 to 2018.

3. Calculate the firm’s 2018 income before income taxes, assuming that no interest was capitalized in 2018. What is the percentage change from the reported amount? Assume that none of the assets to which 2018 capitalized interest applies have been completed and placed into service.

4. Starting with net income of $19,953 million as reported in 2018, assume the same facts as in requirement 3 and recalculate AT&T’s net income.

5. Briefly discuss the impact of capitalized interest on AT&T’s future reported earnings.

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AT&T Inc. Consolidated Statement of Income Years Ended December 31, ($ in millions) 2018 2017 2016 $ 7,957 $ 6,300 $ 4,910 Interest expense, net of capitalized interest Capitalized interest Income before income taxes 493 903 892 24,873 15,139 19,812 Net income $19,953 $29,847 $13,333 Consolidated Statement of Cash Flows ($ in millions) 2018 2017 2016 Cash paid during the year for interest $8,818 $6,622 $5,696