Scenario: WFB Builders is a partnership formed by two construction companies $($neither of which is a C corporation$)$ using a calendar year tax year. WFB builders has been engaged in numerous other projects over the last several years such that it has had gross receipts of at least $$35$ million per year since $2015.$

In October $2019,$ WFB entered into a contract with O Development Co$.$ to build a $25-$story apartment building with at least $150$ apartments and various amenities for the residents such as a fitness center, community room, etc. There will also be space for a coffee shop on the ground floor. The plans for the building show that the coffee shop will take up only $5\%$ of the total floor space in the building. The total contract price for the construction is $$100$ million. Construction is to commence in November $2019$ and the building is to be completed in June $2021.$

At the end of $2019,$ WFB estimated that $75\%$ of the contract costs will be attributable to the actual residential units in the building, another $17\%$ of the costs will be attributable to the common areas and amenities for the residential units, and $8\%$ of the costs will be attributable to the coffee shop.

At the end of $2019,$ WFB had incurred total allocable costs of $$7$ million and estimated the total allocable costs would be $$70$ million. In $2020,$ WFB incurred another $$54$ million in allocable costs and amended its estimate of total allocable costs to $$80$ million.

what is the best portfolio to research what accounting method WFB may use in order to account for the income earned and expenses incurred over the course of the contract with O development?

a$)$ portfolio $575-2$nd

b$)$ portfolio $712-4$th

c$)$ portfolio $576-3$rd

d$)$ portfolio $577-3$rd

Given the facts and your research on Bloomberg Tax, how would you characterize WFB$$s contract?

A$)$ Long$-$term residential construction contract that is eligible for the small contractor exception B$)$ Mixed$-$use construction contract that is required to use the Percentage of Completion Method $($PCM$)$

C$)$ Short$-$term residential construction contract that is required to use the Percentage of Completion Method $($PCM$)$

D$)$ Long$-$term residential construction contract that is not eligible for the small contractor exception

How is the Percentage of Completion $($PCM$)$ computed

A$)$ Estimated total allocable contract costs $/$ Cumulative allocable contract costs $($i$.$e$.,$ costs incurred through the end of the tax year$)$

B$)$ Current year allocable contract costs $/$ Estimated total allocable contract costs

C$)70\%$ of cumulative allocable contract costs $($i$.$e$.,$ costs incurred through the end of the tax year$)/70\%$ of estimated total contract costs

D$)$ Cumulative allocable contract costs $($i$.$e$.,$ costs incurred through the end of the tax year$)/$ Estimated total allocable contract costs

How much income from the contract would WFB report in $2020$ if they are permitted to use the percentage of completion method to account for the contract? What is the $2020$ net income and gross income?