--- a/src/org/tmatesoft/hg/internal/COWTransaction.java	Thu Jun 06 14:21:11 2013 +0200
+++ b/src/org/tmatesoft/hg/internal/COWTransaction.java	Thu Jun 06 18:42:38 2013 +0200
@@ -46,19 +46,12 @@
 
 	@Override
 	public File prepare(File f) throws HgIOException {
-		if (!f.exists()) {
-			record(f, null);
-			try {
-				f.getParentFile().mkdirs();
-				f.createNewFile();
-				return f;
-			} catch (IOException ex) {
-				throw new HgIOException("Failed to create new file", ex, f);
-			}
-		}
 		if (known(f)) {
 			return f;
 		}
+		if (!f.exists()) {
+			return recordNonExistent(f);
+		}
 		final File parentDir = f.getParentFile();
 		assert parentDir.canWrite();
 		File copy = new File(parentDir, f.getName() + ".hg4j.copy");
@@ -85,6 +78,9 @@
 		if (known(origin)) {
 			return origin;
 		}
+		if (!origin.exists()) {
+			return recordNonExistent(origin);
+		}
 		fileHelper.copy(origin, backup);
 		final RollbackEntry e = record(origin, backup);
 		e.keepBackup = true;
@@ -139,6 +135,17 @@
 		}
 	}
 
+	private File recordNonExistent(File f) throws HgIOException {
+		record(f, null);
+		try {
+			f.getParentFile().mkdirs();
+			f.createNewFile();
+			return f;
+		} catch (IOException ex) {
+			throw new HgIOException("Failed to create new file", ex, f);
+		}
+	}
+	
 	private RollbackEntry record(File origin, File backup) {
 		final RollbackEntry e = new RollbackEntry(origin, backup);
 		entries.add(e);
@@ -146,23 +153,28 @@
 	}
 
 	private boolean known(File f) {
-		for (RollbackEntry e : entries) {
-			if (e.origin.equals(f)) {
-				return true;
-			}
+		RollbackEntry e = lookup(f);
+		return e != null;
+	}
+
+	private RollbackEntry find(File f) {
+		RollbackEntry e = lookup(f);
+		if (e != null) {
+			return e;
 		}
-		return false;
+		assert false;
+		return new RollbackEntry(f,f);
 	}
-	private RollbackEntry find(File f) {
+	
+	private RollbackEntry lookup(File f) {
 		for (RollbackEntry e : entries) {
 			if (e.origin.equals(f)) {
 				return e;
 			}
 		}
-		assert false;
-		return new RollbackEntry(f,f);
+		return null;
 	}
-
+	
 	private static class RollbackEntry {
 		public final File origin;
 		public final File backup; // may be null to indicate file didn't exist