On September 1, 2018, Jacks Jewellery Inc. ordered some machinery from a supplier in Hong Kong for

HK$250,000. The machinery was received on November 1 of that year with payment due by January 31, 2019.

Ownership of the equipment changed hands upon delivery to Jacks Jewellery Inc. The equipment was put into

service immediately with an estimated useful life of eight years.

On September 2, 2018, the company entered into a forward contract with its bank to purchase HK$250,000 on

January 31, 2019, at a rate of $0.165. On January 31, 2019, Jacks Jewellery Inc. settled the forward contract with

their bank and paid the supplier in Hong Kong.

Exchange rates were as follows:

September 1 and 2, 2018

Spot Rate

HK$1.00 = Can$0.160

Forward Rate to Jan 31, 2018

HK$1.00 = Can$0.165

November 1, 2018

Spot Rate

HK$1.00 = Can$0.163

Forward Rate to Jan 31, 2018

HK$1.00 = Can$0.166

December 31, 2018

Spot Rate

HK$1.00 = Can$0.167

Forward Rate to Jan 31, 2018

HK$1.00 = Can$0.168

January 31, 2019

Spot Rate

HK$1.00 = Can$0.170

Forward Rate to Jan 31, 2018

HK$1.00 = Can$0.170

Required:

a)

Assume that hedge accounting was not applied. Prepare journal entries to record the transactions set out

above, including the amortization of the machinery at the companys year-end.

b)

Assume that the forward contract was designated as a cash flow hedge of the expected future obligation

to the Hong Kong supplier. Prepare journal entries to record the transactions set out above, including the

amortization of the machinery at the companys year-end.