Mack Ltd. is a Canadian company that reports using IFRS. Mack sells equipment to industrial firms and is involved in foreign-currency transactions both as a purchaser and as a seller.

The company had two international transactions in 20X6: it sold equipment to a customer in Thailand and it purchased a specialized piece of equipment from a retailer in Britain. Details of these transactions follow.

Mack has a May 31 year end.

British purchase On March 8, 20X6 (20X6 fiscal year), Mack entered into a non-cancellable contract to purchase a specialized industrial dispersion mixer from a British manufacturer for delivery on June 15, 20X6 (20X7 fiscal year). The contracted price for the mixer was 250,000, with payment due on the day the equipment is delivered.

On March 8, 20X6, the day that Mack ordered the equipment, the company entered into a forward contract to purchase 250,000 on June 15, 20X6, in order to fix the cost of the equipment.

Information regarding the spot rates and forward rates between the pound sterling and the Canadian dollar follows:

Date Spot rate Forward rate for delivery June 15, 20X6

March 8,20X6 1 = C$1.8720 1 = C$1.9140

May 31, 20X6 1 = C$1.9050 1 = C$1.9250

June 15, 20X6 1 = C$1.9200 1 = C$1.9200

Required:

i. Assume the company uses hedge accounting and designated the hedge as a fair value hedge.

Prepare journal entries to record the forward contract and the purchase of equipment, including the adjusting entries required at year end and the settlement date. Support the journal entries with a brief explanation as to theirnature. Include supporting calculations in the journal entries or reference their location elsewhere on the worksheet.

ii. Assume the company uses hedge accounting and designated the hedge as a cash flow hedge.

Prepare journal entries to record the forward contract and the purchase of equipment, including the adjusting entries required at year end and the settlement date. Support the journal entries with a brief explanation as to their nature. Include supporting calculations in the journal entries or reference their location elsewhere on the worksheet.