Franklin Corporation acquired 90 percent of the voting common stock of Lancaster Company on January 1, 20X1, for \(\$ 486,000\). At the time of the combination, Lancaster reported common stock outstanding of \(\$ 120,000\) and retained earnings of \(\$ 380,000\). The book value of Lancaster's net assets approximated market value except for patents that had a market value \(\$ 40.000\) greater than book value. The patents had a remaining economic life of five years at the date of the business combination. Lancaster reported net income of \(\$ 60,000\) and paid dividends of \(\$ 20,000\) during 20X1.

\section*{Required}

a. What is the balance reported by Franklin as its investment in Lancaster at December 31, 20X1, assuming Franklin uses the equity method in accounting for its investment?

b. Give the eliminating entry or entries needed to prepare consolidated financial statements at December 31, 20X1.