On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$500,000. 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$500,000 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, Year 3 HK$1 = C$0.160 October 1, Year 3 HK$1 = C$0.164 December 31, Year 3 HK$1 = C$0.169. forward rate: August 1 and 2, Year 3 HK$1= C$0.165 , October 1, Year 3 HK$1 = C$0.168, December 31, Year 3 HK$1 =C$0.169

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. Prepare the journal entries for Year 3 to record all the activity described above and prepare 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. Prepare the journal entries for Year 3 to record all the activity described above and prepare a summary journal entry for the combined effect of all entries.

c.)Assume that hedge accounting was not applied. Prepare the journal entries for Year 3 to record all the activity described above and prepare a summary journal entry for the combined effect of all entries.

(d) Explain the similarities and differences between the account balances under the three scenarios above