Preacquisition Contingency On January 3, 2012, Prance
Corporation purchased all of the business operations of Step
Corporation for $2,880,000 cash. The acquisition is recorded as a
merger. Step's identifiable assets and liabilities are listed below
at their fair values: Current assets $1,360,000 Noncurrent assets
2,560,000 Estimated liability: defective product lawsuits (448,000)
Other liabilities (800,000) The $448,000 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
$320,000. Then, in late 2013, after observing large judgments
awarded by courts in similar lawsuits against competitors,
management revised the estimated liability upward to $560,000.
Prepare the entries made by Prance to record the above events.
Original acquisition entry:
Change in pre-acquisition liability within measurement period:
Change in pre-acquisition liability not in measurement period:
Original acquisition entry:
Change in pre-acquisition liability within measurement period:
Change in pre-acquisition liability not in measurement period:
