Assume that a parent company owns a 100% controlling interest in its long-held subsidiary. The following excerpts are from the parent's and subsidiary's pre-consolidation financial statements for the year ending December 31, 2019:

The parent sold inventories to the subsidiary during both 2018 and 2019. For these sales to the subsidiary, the parent earns a gross profit of 35%.

Intercompany Inventory

What is the amount of intercompany sales between the parent and subsidiary that remained unpaid at December 31, 2019?

a. $2,730,000

b. $889,500

c. $900,000

d. $2,370,000

Parent Subsidiary Consolidated Income Statement Revenues $4,200,000 $2,850,000 $6,150,000 Cost of goods sold (2,730,000) (1,710,000) (3,550,500) 1,470,000 1,10,000 Gross profit 2,599,500 Income from subsidiary 222,000 Selling, general & administrative expenses (1,200,000) (907,500) (2,107,500) $492,000 $232,500 $492,000 Net income Statement of retained earnings Retained earnings, January 1 $300,000 $277,500 $300,000 492,000 232,500 Net income 492,000 Dividends declared (702,000) (67,500) (90,000) $702,000 $702,000 $442,500 Retained earnings, December 31 Balance Sheet Cash $90,000 $60,000 $150,000 Accounts receivable 180,000 112,500 244,500 Inventories 195,000 135,000 298,500 Investment in Subsidiary 973,500 Property, plant & equipment 930,000 1,275,000 2,205,500 Goodwill 0 75,000 Total assets $2,713,500 $1,237,500 $2,973,000 $82,500 Accounts payable $120,000 $154,500 All other liabilities 675,000 450,000 225,000 487,500 Common stock & APIC 1,441,500 1,441,500 Retained earnings 702,000 442,500 702,000 $2,713,500 $1,237,500 Total liabilities and equity $2,973,000 Parent Subsidiary Consolidated Income Statement Revenues $4,200,000 $2,850,000 $6,150,000 Cost of goods sold (2,730,000) (1,710,000) (3,550,500) 1,470,000 1,10,000 Gross profit 2,599,500 Income from subsidiary 222,000 Selling, general & administrative expenses (1,200,000) (907,500) (2,107,500) $492,000 $232,500 $492,000 Net income Statement of retained earnings Retained earnings, January 1 $300,000 $277,500 $300,000 492,000 232,500 Net income 492,000 Dividends declared (702,000) (67,500) (90,000) $702,000 $702,000 $442,500 Retained earnings, December 31 Balance Sheet Cash $90,000 $60,000 $150,000 Accounts receivable 180,000 112,500 244,500 Inventories 195,000 135,000 298,500 Investment in Subsidiary 973,500 Property, plant & equipment 930,000 1,275,000 2,205,500 Goodwill 0 75,000 Total assets $2,713,500 $1,237,500 $2,973,000 $82,500 Accounts payable $120,000 $154,500 All other liabilities 675,000 450,000 225,000 487,500 Common stock & APIC 1,441,500 1,441,500 Retained earnings 702,000 442,500 702,000 $2,713,500 $1,237,500 Total liabilities and equity $2,973,000