Interpreting Equity Method Investment Footnotes AT&T reports the following footnote to its 2015 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 2015 2014 Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 250 $3,860 Additional investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 226 DIRECTV investments acquired . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232 —

Equity in net income of affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 79 175 Dividends and distributions received . . . . . . . . . . . . . . . . . . . . . . (30) (148)

Sale of América Móvil shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . — (3,817)

Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (46)

End of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,606 $ 250 Undistributed earnings from equity affiliates were $162 and $88 at December 31, 2015 and 2014.

a. At what amount is the equity investment in affiliates reported on AT&T’s balance sheet?

b. Did affiliates pay dividends in 2015? How do you know?

c. How much income did AT&T report in 2015 relating to this investment in affiliates?

d. Interpret the AT&T statement that “undistributed earnings from equity affiliates were $162 and $88 at December 31, 2015 and 2014.”

e. How does use of the equity method impact AT&T’s ROE and its RNOA components (net operating asset turnover and net operating profit margin)?

f. AT&T accounts for its investment in affiliates under the equity method. Why?