On December 31, 2020 Beaver Inc. has 1,000 tractors in inventory that were originally purchased for $15,000 each. Beaver Inc. wants to hedge exposure to future declines in monitor prices. To do this it purchases a three-year put option to sell monitors at a fixed price. The option is designated as a fair value hedge and gives Beaver Inc. the option to sell up to 1,000 tractors at $15,000 per item.

Required:

1. On December 31, 2021 the market price for tractors is $14,000. What entry does Beaver Inc. make on this date to account for its put option?

2. On December 31, 2022 the market price for tractors is $12,000. What entry does Beaver Inc. make on this date to account for its put option?