On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$310,000. 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$310,000 on December 31, Year 3, at a rate of $0.184. On December 31, Year 3, Carleton settled the forward contract and paid the supplier.

Exchange rates were as follows:

	Spot Rates	Forward Rates#
August 1 and 2, Year 3	HK$1 = C$0.179	HK$1 = C$0.184
October 1, Year 3	HK$1 = C$0.183	HK$1 = C$0.187
December 31, Year 3	HK$1 = C$0.188	HK$1 = C$0.188

^#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. 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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

(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. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.)

Date	General Journal	Debit	Credit
August 1, Year 3	(Click to select) Interest receivable Receivable from bank Machinery Accounts payable Commitment liability No journal entry required OCI Cash Equipment Purchase Exchange gains/losses Land Accumulated OCI Forward contract
	(Click to select) Exchange gains/losses Accounts payable OCI Machinery Payable to bank Loan payable No journal entry required Commitment liability Sales Cash
	Recored the contract to purchase machinery.
August 2, Year 3	(Click to select) Forward contract Machinery Receivable from bank Commitment liability Cash Equipment Interest receivable Accumulated OCI No journal entry required Land Purchase OCI Exchange gains/losses Accounts payable
	(Click to select) Sales OCI Payable to bank Commitment liability No journal entry required Accounts payable Machinery Loan payable Exchange gains/losses Cash
	Record the forward contract.
October 1, Year 3	(Click to select) Cash No journal entry required Accounts payable Land Purchase Forward contract Exchange gains/losses OCI Machinery Equipment Accumulated OCI Commitment liability Receivable from bank Interest receivable
	(Click to select) OCI Machinery Payable to bank Cash Exchange gains/losses Sales Loan payable Accounts payable No journal entry required Commitment liability
	Record the purchase of machinery.
	(Click to select) Forward contract Receivable from bank Exchange gains/losses Machinery No journal entry required Interest receivable Accounts payable Equipment Land Purchase OCI Commitment liability Accumulated OCI Cash
	(Click to select) Accounts payable OCI Exchange gains/losses Payable to bank Commitment liability Loan payable Machinery Cash No journal entry required Sales
	Revalue forward contract at fair value.
	(Click to select) Receivable from bank OCI Land Exchange gains/losses Accounts payable Forward contract Accumulated OCI No journal entry required Cash Equipment Purchase Machinery Commitment liability Interest receivable
	(Click to select) Accounts payable Exchange gains/losses Loan payable Commitment liability No journal entry required Cash Machinery Sales Payable to bank OCI
	Revalue commitment liability at forward rate.
	(Click to select) Exchange gains/losses Machinery Receivable from bank Purchase Equipment OCI Commitment liability Land Accounts payable Forward contract Accumulated OCI Cash Interest receivable No journal entry required
	(Click to select) Machinery Exchange gains/losses Cash Payable to bank Accounts payable Sales OCI Commitment liability No journal entry required Loan payable
	Record the transfer of Commitment liability.
December 31, Year 3	(Click to select) No journal entry required Cash Forward contract Accounts payable Equipment Land Receivable from bank Machinery Interest receivable Commitment liability Purchase Exchange gains/losses Accumulated OCI OCI
	(Click to select) No journal entry required Commitment liability Payable to bank Accounts payable OCI Machinery Cash Loan payable Sales Exchange gains/losses
	Revalue forward contract at fair value.
	(Click to select) Land Interest receivable Forward contract OCI Machinery Equipment Receivable from bank Exchange gains/losses Purchase Cash Accumulated OCI No journal entry required Accounts payable Commitment liability
	(Click to select) Commitment liability Accounts payable Sales No journal entry required Cash OCI Payable to bank Machinery Exchange gains/losses Loan payable
	Revalue accounts payable at fair value.
	(Click to select) Cash Exchange gains/losses Land Receivable from bank Accounts payable Purchase No journal entry required Commitment liability Accumulated OCI Machinery Interest receivable OCI Equipment Forward contract
	(Click to select) No journal entry required Sales Exchange gains/losses Machinery Payable to bank Accounts payable Loan payable Forward contract Commitment liability OCI
	(Click to select) Payable to bank Cash Sales Machinery OCI Exchange gains/losses No journal entry required Loan payable Commitment liability Accounts payable
	Record the cash received from bank.
	(Click to select) Exchange gains/losses Receivable from bank Purchase Interest receivable Accounts payable Land Equipment No journal entry required Commitment liability Forward contract OCI Accumulated OCI Cash Machinery
	(Click to select) Commitment liability Loan payable Exchange gains/losses Payable to bank No journal entry required OCI Machinery Accounts payable Sales Cash
	Record payment of accounts payable.
Summary journal entry	(Click to select) Accounts payable Machinery No journal entry required Cash OCI Receivable from bank Land Accumulated OCI Equipment Commitment liability Forward contract Purchase Interest receivable
	(Click to select) Accumulated OCI Accounts payable Commitment liability OCI Interest receivable Equipment No journal entry required Purchase Receivable from bank Cash Machinery Exchange gains/losses Forward contract Land
	(Click to select) Exchange gains/losses Sales Accounts payable Commitment liability Cash No journal entry required Loan payable OCI Machinery Payable to bank
	Record summary entry for all entries combined.

(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. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required.)