Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 20X1, for $500,000. On that date, the stockholders' equity of Sanburn Company was $380,000.On the purchase date, inventory of Sanburn Company, which was sold during 20X1, was understated by $20,000. Any remaining excess of cost over book value is attributable to patent with a 20-year life. The reported income and dividends paid by Sanburn Company were as follows:

	20X1
Net income	$80,000
Dividends paid Using the simple equity method, which of the following amounts on the parent's books are correct?	10,000

Subsidiary Income Investment Account Balance

20X1 December 31, 20X1

a.	$80,000 $570,000
b.	$70,000 $570,000
c.	$70,000 $550,000
d.	$80,000 $550,000

You MUST explain how you arrived at the answer.