Preacquisition Contingency On January 3, 2012, Prance Corporation purchased all of the business operations of Step Corporation for $1,440,000 cash. The acquisition is recorded as a merger. Step's identifiable assets and liabilities are listed below at their fair values: Current assets $680,000 Noncurrent assets 1,280,000 Estimated liability: defective product lawsuits (224,000) Other liabilities (400,000) The $224,000 estimated liability represented Step's best estimate of likely losses due to lawsuits pending as of January 3, 2012. Later in 2012, as favorable information regarding the January 3, 2012, status of defective products became available, the estimated liability was reduced to $160,000. Then, in late 2013, after observing large judgments awarded by courts in similar lawsuits against competitors, management revised the estimated liability upward to $280,000. Prepare the entries made by Prance to record the above events.

Original acquisition entry:

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