During 2022, The Blue Company sold inventory costing it $1,200,000 to its 100% owned subsidiary, Yellow Company. Blue Company marked up the inventory so that it achieved a 70% gross profits on sales.

By the end of the year (12/31/2022), Yellow Company had sold all of the inventory to an outside, independent company for $5,000,000?

 

Required:

 

1) By how much is cost of goods sold overstated on Yellow Company's books, before the elimination entry on December 31, 2022?