3. Sun Corporation, a 75 percent–owned subsidiary of Pam Corporation, sells inventory items to its parent at 125 percent of cost. Inventories of the two affiliates for 2016 are as follows:

Pam Sun Beginning inventory $400,000 $250,000 Ending inventory 500,000 200,000 Pam’s beginning and ending inventories include merchandise acquired from Sun of $150,000 and $200,000, respectively, which is sold in the following year. If Sun reports net income of $300,000 for 2016, Pam’s income from Sun will be:

a $255,000 b $217,500 c $215,000 d $195,000