On June 1, Year 1, Charley Horse Company entered into a contract with Good Feed Company to purchase 1,000 bales of organic hay on January 30, Year 2, at a price of $30 per bale. The hay will be grown especially for Charley Horse and is needed to feed the company's herd of buffalos. On December 1, Year 1, Charley Horse sells its herd of buffalos. As a result, the company no longer has a need for the organic hay that will be delivered on January 30, Year 2, and the company does not believe it will be able to sell the hay to a third party. Charley Horse is able to cancel the contract with Good Feed for a cancellation fee of $20,000.
Required:
Determine what accounting entries, if any, Charley Horse Company should make on December 31, Year 1, related to the contract to purchase 1,000 bales of hay on January 30, Year 2.