PPP loan worksheet question for s-corp filing (1120-S)

Mine is a 2-member LLC filing as S-Corp. My business received around 20000 USD PPP load and it has been forgiven in 2021. Now facing this question while filling the business info in Turbo Tax Business 2021.

 

"Treat Tax-Exempt income resulting from PPP loan forgiveness as received or accrued"

(1) as, and to the extent that, expenses are paid or incurred

(2) when forgiveness is applied for; or

(3) when forgiveness is granted.

 

Not sure which option to select. I didn't even understand what is being asked in this question. Please see the attached screenshot.

 

Changing these options is not changing any numbers, not the K1 amounts. 

Can anyone explain what this is? Which one to select?

 

Thank you. 

PPP_Question_Turbotax.png