A subsidiary sells merchandise to its parent at a markup of 25 percent on cost. The parents beginning inventory includes $31,250 in merchandise purchased from the subsidiary. The subsidiary sells $500,000 retail value merchandise to the parent during the year. The parents ending inventory includes $37,500 in merchandise purchased from the subsidiary. Eliminations (I) for intercompany merchandise sales have a net effect of decreasing ending inventory by what amount?

Select one:

a. $1,250

b. $6,250

c. $7,500

d. $13,750