On April 22, 1999, MediaOne Group and AT&T agreed to merge. Under the merger, MediaOne Group’s shareowners will receive .95 of a share of AT&T common stock and $30.85 in cash for each share of MediaOne Group. The total package of cash and stock was valued at $85 per share. MediaOne has 604.4 million shares outstanding.

Income Statement December 31, 1998 (in $ millions) AT&T MediaOne Revenues Business Services $23,611 —
Consumer Services 22,885 —
Wireless Services 5,406 $361 Broadband and Internet Services — 2,491 Other and Corporate 1,321 30 Total Revenues 53,223 2,882 Operating Expenses 45,736 3,121 Total Operating Income (Loss) 7,487 (239)
Other income, net 1,247 3,368 Earnings (Loss) Before Interest and Taxes 8,734 3,129 Interest expense 427 491 Income from Continuing Operations Before Income Taxes 8,307 2,638 Provision for income taxes 3,072 1,208

If MediaOne’s asset book values are approximately equal to their market values, how much goodwill did AT&T pay for MediaOne? Prepare a pro forma income statement and balance sheet for the merged firm for 1998.AppendixLO1

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Income Statement December 31, 1998 (in $ millions) Income (Loss) from Continuing Operations Income from discontinued operations Gain on sale of discontinued operations Extraordinary loss Net Income AT&T MediaOne 5,235 1,430 10 25.208 1,290 137 333 $ 6,398 $26,305