A subsidiary sells merchandise to its parent at a markup of 25% on cost. In 2018, the parent paid $725,000 for merchandise received from the subsidiary. By year-end 2018, the parent has sold $600,000 of the merchandise to outside customers for $900,000, but still holds the other $125,000 in its ending inventory.

What is the gross margin on these merchandise sales, as reported on the consolidated income statement?

A. $150,000

B. $300,000

C. $420,000

D. $175,000