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Interpreting Equity Method Investment Footnotes

AT&T reports the following footnote to its 2018 10-K report.

Equity Method Investments Investments in partnerships, joint ventures and less than majority owned subsidiaries in which we have significant influence are accounted for under the equity method . . . The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets.

$ millions	2018	2017
Beginning of year	$1,560	$1,674
Additional investments	237	51
Time Warner investments acquired	4,912	-
Acquisition of remaining interest in Otter Media	(166)	-
Equity in net income of affiliates	(48)	(128)
Dividends and distributions received	(243)	(46)
Sale of America Movil shares	(14)	22
Other adjustments	7	(13)
End of year	$6,245	$1,560

Undistributed earnings from equity affiliates were $292 and $174 at December 31, 2018 and 2017, respectively.

a. At what amount is the equity investment in affiliates reported on AT&Ts balance sheet? $Answer million b. Did affiliates pay dividends in 2018? How do you know?

Yes, the receipt of dividends would reduce the balance of the equity method investment account, which is shown in the table.

No, the receipt of dividends would increase the balance of the equity method investment account rather than reduce it as shown in the table.

Not enough information is provided to determine if the affiliates paid dividends in 2018.

c. How much income did AT&T report in 2018 relating to this investment in affiliates? Use a negative sign to indicate a net loss, if applicable. $Answer million d. Interpret the AT&T statement that undistributed earnings from equity affiliates were $292 and $174 at December 31, 2018 and 2017, respectively.

Undistributed earnings are earnings that have been paid out as dividends; this amount is retained earnings of the affiliates at year-end.

Undistributed earnings are earnings that have not yet been paid out as equity income; this amount is included in AT&T's retained earnings at year-end.

Undistributed earnings are earnings that have not yet been paid out as dividends; this amount is retained earnings of the affiliates at year-end.

Undistributed earnings are earnings that have not yet been paid out as dividends; this amount is included in AT&T's AOCI at year-end.

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