Reference no: EM132594923

On August 1, Year 3, Carleton Ltd. ordered machinery from a supplier in Hong Kong for HK$300,000. 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$300,000 on December 31, Year 3, at a rate of $0.263. On December 31, Year 3, Carleton settled the forward contract and paid the supplier.

Exchange rates were as follows:

                                         sportr rates:                       forward rates

August , and 2 year 3 :         HK $1 = 0.258 $                  HK1$ = 0.263

October 1, year 3:                   HK$1=C 0.262                 HK$ 0.266

December 31 , year 3 :           HK$1= C$0.267,              HK$1=C$0.267

#for contracts expiring on December 31, year 3

Required:

Question (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 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.)