AT&T Inc. provided the following footnote in its 10-Q report for the first quarter of the fiscal year 2019.

As of January 1, 2019, we adopted with modified retrospective application, Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) as modified (ASC-842), which replaces existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements.

Using the modified retrospective transition method of adoption we did not adjust the balance sheet for comparative periods but we recorded a cumulative effect adjustment to retained earnings on January 1, 2019. We elected the transition guidance within the new standard. Our accounting for finance leases did not change from our prior accounting for capital leases.

The adoption of ASC 842 resulted in the recognition of an operating lease liability of $22,121 and an operating right-of-use asset of the same amount. Existing prepaid and deferred rent accruals were recorded as an offset to the right-of-use asset, resulting in a net asset of $20,960. The cumulative effect of the adoption to retained earnings was an increase of $316 reflecting the reclassification of deferred gains related to sale/leaseback transactions. The standard will have no impact on our debt-covenant compliance under our current agreements.

On January 1, 2019, after adopting the new standard, AT&T’s balance sheet reported the following amounts ($millions)

Total assets……......... $531,864

Total Liabilities……… $445,290

Total Equity……........... $86,574

Required

1. When AT&T adopted the new standard, what were the dollar effects on total assets and on total liabilities?
2. AT&T Used the Modified retrospective transition method of adoption. Explain what this means and describe the dollar impact on retained earnings.
3. Quantify in percentage terms, the size of the dollar effect of the adoption of the new standard on AT&T’s assets, liabilities, and equity.

Answer rating: 100% (QA)

1 ATT adopted the new standard using the modified retrospective transition method of adoption This means that the company did not adjust the balance s... View the full answer