Reference no: EM132513598
Question - On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$370,000. The machinery was delivered on October 1, Year 3, with terms requiring payment in full by December 31, Year 3. On August 2, Year 3, Carleton entered a forward contract to purchase HK$370,000 on December 31, Year 3, at a rate of $0.282. On December 31, Year 3, Carleton settled the forward contract and paid the supplier.
Exchange rates were as follows:
Spot Rates:
August 1 and 2, Year 3HK$1 = C$0.277
October 1, Year 3HK$1 = C$0.281
December 31, Year 3HK$1 = C$0.286
Forward Rates:
August 1 and 2, Year 3 HK$1 = C$0.282
October 1, Year 3 HK$1 = C$0.285
December 31, Year 3HK$1 = C$0.286
#For contracts expiring on December 31, Year 3.
Required -
(a) Assume that the forward contract was designated as a cash flow hedge of the firm commitment to purchase the machinery, and that the balance in accumulated other comprehensive income on October 1 was transferred to the machinery account when the machinery was delivered. How do I record these journal entries?
(b) Assume that the forward contract was designated as a fair value hedge of the firm commitment to purchase the machinery and that the balance in the commitment asset/liability account on October 1 was transferred to the machinery account when the machinery was delivered. How do I record these journal entries?
(c) Assume that hedge accounting was not applied. How do I record these journal entries?
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