Red Hat, Inc. reported comprehensive income from 2008 to 2010 as follows ($ thou
ID: 2457398 • Letter: R
Question
Red Hat, Inc. reported comprehensive income from 2008 to 2010 as follows ($ thousands):
2008 2009 2010
Net income $78,721 $87,253 $107,278
Unrealized loss on available-for-sale investments (272) (988) (2,266)
Foreign currency translation 8,609 (8,283) (309)
Comprehensive income $87,058 $77,982 $104,403
Required:
1- Assuming that Red Hat has not purchased or sold any available-for-sale securities, what has happened to the value of the available-for-sale investments from 2008 to 2010? Is this change in value reported on the income statement?
2- Which method does Red Hat use to translate foreign subsidiaries? Why?
3- Explain the change in the translation adjustment from 2008 to 2010
Explanation / Answer
1) Unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Upon realization, such amounts are reclassified from accumulated other comprehensive income to investment income.
Change in Fair value of the investment not sold is part of unrealized gain and loss.
2) Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income and expense items are translated at average rates for the period.
3) The impact of changes in foreign currency exchange rates resulting from the translation of foreign currency financial statements into U.S. dollars for financial reporting purposes is included in other comprehensive income, which is a separate component of stockholders’ equity.
ASC 830 or FAS 52 defines the accounting of foreign currency transactions.
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