Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 3 (9 marks) Mack Ltd. is a Canadian company that reports using IFRS. Mack sells equipment to industrial firms and is involved in

image text in transcribed

Question 3 (9 marks) 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. b) 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: Spot rate Date March 8, 20X6 1 = C$1.8720 May 31, 20X6 1 = C$1.9050 June 15, 20X6 1 = C$1.9200 Forward rate for delivery June 15, 20X6 1 C$1.9140 1 = C$1.9250 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 their 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. (3 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Payroll Accounting 2016

Authors: Bernard J. Bieg, Judith Toland

26th edition

978-1305665910, 1305665910, 1337072648, 978-1337072649

More Books

Students also viewed these Accounting questions

Question

0 What information is reported in a balance sheet?

Answered: 1 week ago