On January 3, 2015, Prance Corporation purchased all of the business operations of Step Corporation for \($10\) million cash. The acquisition is recorded as a merger. Step’s identifiable assets and liabilities are listed below at their fair values:

The \($400,000\) estimated liability represented Step’s best estimate of likely losses due to lawsuits pending as of January 3, 2015. Later in 2015, as favorable information regarding the January 3, 2015, status of defective products became available, the estimated liability was reduced to \($300,000.\) Then, in late 2016, after observing large judgments awarded by courts in similar lawsuits against competitors, management revised the estimated liability upward to \($500,000.

Required 

Prepare\) the entries made by Prance to record the original acquisition entry and the subsequent value changes in 2015 and 2016.

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Current assets Plant and equipment Estimated liability: defective product lawsuits. Other liabilities. $ 850,000 3,000,000 (400,000) (4,000,000)