The following information applies to the two questions below. On January 1, 2018, Randall Pearson Corp. (RPC"), a major real estate developer, entered into a contract to build a large retail center in downtown Philadelphia. The retail center was completed at the end of 2020 (that is, the project took three years to complete). The contract price was $12,000,000. RPC's fiscal year-end is December 31. The following is a year-by-year summary of construction costs incurred and the estimated costs to complete the project at the end of each year, as well as additional information regarding billings and collections.

2018

2019

2020

Actual costs incurred during the year		$2,250,000	$6,750,000	$2,325,000
Actual costs incurred during prior years		$0	$2,250,000	$9,000,000
Estimated costs to complete (at end of the year)		$6,750,000	$2,250,000	$0
Billings during the year		$2,100,000	$7,800,000	$2,100,000
Cash collections during the year		$1,500,000	$6,000,000	$4,500,000

What is the total gross profit on the project assuming the percentage of completion method (and cost-to-cost approach) is used for revenue recognition purposes? What is the total gross profit on the project assuming the completed contract method is used for revenue recognition purposes?

A.

Gross Profit = $750,000 under the percentage of completion method and $675,000 under the completed contract method.

B.

Gross Profit = $3,000,000 under the percentage of completion method and $675,000 under the completed contract method.

C.

Gross Profit = $3,000,000 under the percentage of completion method and $3,000,000 under the completed contract method.

D.

Gross Profit = $675,000 under the percentage of completion method and $675,000 under the completed contract method.

In the final year, the Company recognized revenue and gross profit (or loss) on the long-term construction project. The journal entry to record revenue and gross profit (or loss) in the final year included which of the following (note: CIP = Construction in Progress):

A.

A $75,000 debit to CIP under the percentage of completion method, or a $675,000 debit to CIP under the completed contract method.

B.

A $750,000 debit to CIP under the percentage of completion method, or a $0 debit (i.e., no debit) to CIP under the completed contract method.

C.

A $675,000 debit to CIP under the percentage of completion method, or a $75,000 debit to CIP under the completed contract method.

D.

A $150,000 debit to CIP under the percentage of completion method, or a $0 debit (i.e., no debit) to CIP under the completed contract method.