International Accounting 7th Edition English Answers After Class Chapter 6Chapter 6 Foreign Currency Translation Discussion Questions Solutions 1Foreign currency translation is the process of restatin

the U.S. dollars back to Canadian dollars in 6 months’ time.

3. The functional currency is the currency of the primary economic environment in which an entity operates. It is the currency of the country where the entity conducts most of its business transactions and generates most of its cash flows. The reporting currency is the currency in which an entity prepares its financial statements. It can be the same as the functional currency or a different currency.

4. The current rate method is a foreign currency translation method that uses the exchange rate at the balance sheet date to translate all assets and liabilities at that date. The temporal method is a foreign currency translation method that uses different exchange rates for different types of assets and liabilities, depending on their nature and the method of financing used to acquire them. The temporal method is used when the functional currency of the entity is different from the reporting currency.

5. The translation gain or loss is the difference between the amount of the foreign currency accounts translated at the current or temporal rate and the amount of those accounts translated at the previous rate. A translation gain occurs when the current or temporal rate is more favorable than the previous rate, resulting in a higher translated amount of the foreign currency accounts. A translation loss occurs when the current or temporal rate is less favorable than the previous rate, resulting in a lower translated amount of the foreign currency accounts.

6. The translation adjustment is a cumulative account that records all translation gains and losses that have not been realized. It is reported as a separate component of equity on the balance sheet and is not included in net income. The translation adjustment is important because it reflects the impact of changes in exchange rates on the value of an entity's foreign currency assets and liabilities.

7. The use of a functional currency other than the reporting currency creates a foreign currency translation risk. This risk arises because changes in exchange rates between the functional currency and the reporting currency can impact the value of an entity's assets and liabilities. To manage this risk, entities can use hedging techniques such as forward contracts or options to lock in exchange rates for future transactions or to protect against adverse exchange rate movements