On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$5000,000.
Question:
On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$5000,000. 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$5000,000 on December 31, Year 3, at a rate of $0.165 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, Year3 HK$1 = C$0.160
October 1, Year3 HK$1 = C$0.164
December 31, Year3 HK$1 = C$0.169
Forward Rates:
August 1 and 2, Year 3 HK$1 = C$0.165
October 1, Year 3 HK$1 = C$0.168
December 31, Year 3HK$1 = C$0.169
#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 for year 3 for all the activity described above and a summary journal entry for the combined effect of all 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 for year 3 for all the activities described above and a summary journal entry for the combined effect of all entries.
(c)Assume that hedge accounting was not applied. How do I record these journal entries for year 3 for all the activities and a summary journal entry for the combine effect of all entries