I am having an issue with this problem:

Subtract:

8 gal 7 qt
- 3 gal 2 qt

A. 6 gal 3 qt
B. 6 gal 1 qt.
C. 5 gal 3 qt.
D. 5 gal 2 qt.

I thought it totaled to 5 gals. 5 qt.

You are correct, however, it can be reduced. Four quarts is a gallon, so simplify five gallsons and five quarts to six gallons and ....quarts.