ur rite when u ask y subtract 77 only once.........
The GMAT wants an answer from the choices given......you can try to subtract 77 more than once but u will be left with a number which is not divisible by 7..........also the more u subtract 77 the lesser will the number of terms become..........subtracting 77 twice will reduce the terms by 20 which is not among the options
another way of solving the problem is 350/7 = 50.......77 is 7X11.......so one 77 will reduce the number of terms by 11.......so ur left with 39.......but 77 is also one term and hence the number of terms is 39+1=40