On September 1, 20X5, Frank Limited decided to buy 70% of the shares outstanding of Jake Inc. for $840,000. Frank paid for this acquisition by using cash of $500,000 and marketable securities for the remaining amount. The balances showing on the statement of financial position for the two companies at August 31, 20X5, are as follows:

After a review of the financial assets and liabilities, Frank determines that some of the assets of Jake have fair values different from their carrying values. These items are listed below:

Inventory has a fair value of $130,000.

The building has a fair value of $1,090,000. The remaining useful life of the building is 20 years.

A customer list has a fair value of $200,000. The trademark is estimated to have a useful life of 10 years.

The bonds payable have a fair value of $720,000 and are due on August 31, 20X9.

During the 20X9 fiscal year, the following events occurred:

1. Frank sold merchandise to Jake for $200,000. Profit margin on these sales is 30%. Jake still has inventory on hand of $70,000. Included in the opening inventory of Jake for 20X9 is merchandise purchased from Frank in 20X8 for $150,000. The gross profit margin on these sales was 30%

2. Jake sold merchandise to Frank for $500,000. The gross margin on these sales was 40%. At the end of the year, $180,000 of this was still in Frank's inventory. Included in the opening inventory of Frank for 20X9 was merchandise purchased from Jake in 20X8 for $230,000. The profit margin on these sales was 30%.

3. During 20X9, Jake sold to Frank equipment resulting in a gain to Jake of $75,000. At the time, the original cost and accumulated depreciation to date for the equipment on the Jake's books were $510,000 and 160,000. The remaining useful life for this equipment is 15 years. Depreciation is fully recorded in the year of purchase and no depreciation is recorded in the year of disposal by both companies. 4. During 20X9, Jake paid management fees of $450,000 to Frank.

5. During 20X9, Jake paid dividends of $400,000 and Frank paid dividends of $600,000.

Required:

a. Calculate the balance in the investment in Jake account at August 31, 20X9, if the company accounted for this subsidiary using the equity basis.

b. Goodwill is determined using the parent-company extension approach.