Pratt Agriculture sells approximately 600,000 bushels of grain each month. On January 1, 2011, Pratt purchased an option to sell 600,000 bushels of grain on January 1, 2013, at a price of $1.25 per bushel. The market price on January 1, 2011, is $1.25 per bushel. Pratt had to pay $90,000 to purchase this grain put option, which it designated as a hedge against price decreases for its January 2013 sales of grain. On December 31, 2011, the price of grain is $1.75 per bushel. Because there is still time for the price of grain to potentially fall below $1.25 per bushel before the option expires (thus making it advantageous to exercise the put option), the option has a value on December 31, 2011, of $23,000. (Note: This December 31, 2011, option value already takes into account an appropriate adjustment for the time value of money.) On December 31, 2012, the price of grain is $1.35 per bushel.

Instructions:

Make all journal entries necessary on Pratt’s books in 2011, 2012, and 2013 to record this option and the sale of 600,000 bushels of grain in January 2013.