On December 30, Year 1, Plank Company entered into a contract to purchase inventory over the next year.This is an example of a(n)
A)debit to an intangible asset.
B)debit to a tangible asset.
C)credit to a current liability.
D)executory contract.
E)anticipatory contract.

Question

Quizplus · Accepted Answer

An executory contract is a contract where both parties have not yet fulfilled their obligations. In this case, Plank Company has entered into a contract to purchase inventory over the next year, but the purchase and delivery of the inventory has not occurred yet. This is an example of an executory contract. Choices A, B, and C do not apply in this situation, and an anticipatory contract is a contract used to mitigate potential legal issues and conflicts, it does not apply to this situation.

On December 30, Year 1, Plank Company Entered into a Contract