| Course | ACC-2010 Intermediate Accounting I |
|---|---|
| Module | Module 5 |
| Paper type | Written Assignment 5: inventories |
| Length | About 690 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Bachelor of Science in Business Administration |
| Updated | October 2026 |
Free sample paper for ACC 2010 Module 5
Kittatinny Outdoor Gear, Inc.: Three Cost Flows for One Backpack, a Price-Driven Write-Down and a Fire Loss Estimate
Student Name
Bachelor of Science in Business Administration, Thomas Edison State University
ACC-2010: Intermediate Accounting I
Mentor Name
Month Day, Year
Kittatinny Outdoor Gear, Inc.: Three Cost Flows for One Backpack, a Price-Driven Write-Down and a Fire Loss Estimate
Introduction
Inventory is Kittatinny's largest current asset, so the cost flow method it chooses affects both gross profit and the balance sheet. This assignment applies the methods in the module to the Ridgeline 40, a 40-liter backpack, and then estimates a loss that could not be counted directly.
Part A: Cost Flow Methods, Periodic System
During 2025 Kittatinny sold 1,700 backpacks at $95, for revenue of $161,500, leaving 600 units on hand.
The weighted-average unit cost is $129,300 divided by 2,300 units. With each purchase dearer than the last, FIFO charges the January and March packs against 2025 sales and keeps the October cost on the shelf, so it reports the most profit (Spiceland et al., 2020). LIFO does the reverse. The average method falls between them. The choice also affects taxes and comparability: a company that uses LIFO for taxes must also use it in its financial statements, and a company that switches methods must justify the change as preferable and apply it retrospectively. For a product whose costs have risen about 22% in one year, as the Ridgeline 40's have, the differences among methods are large enough for users to need the method disclosed.
| Date | Units | Unit cost | Total |
|---|---|---|---|
| January 1 inventory | 400 | $50 | $20,000 |
| March 10 purchase | 600 | 54 | 32,400 |
| July 22 purchase | 800 | 58 | 46,400 |
| October 5 purchase | 500 | 61 | 30,500 |
| Goods available | 2,300 | $56.2174 average | $129,300 |
| Cost flow assumption | Units left, at cost | Cost of 1,700 packs sold | Profit before expenses |
| FIFO | 500 x $61 + 100 x $58 = $36,300 | $93,000 | $68,500 |
| LIFO | 400 x $50 + 200 x $54 = $30,800 | 98,500 | 63,000 |
| Weighted average | 600 x $56.2174 = $33,730 | 95,570 | 65,930 |
Part B: The LIFO Reserve and Taxes
If Kittatinny used LIFO internally for this line, the LIFO reserve, the difference between FIFO and LIFO inventory, would be $36,300 minus $30,800, or $5,500. That amount is also the cumulative difference in cost of goods sold. At a 25% tax rate, LIFO would lower 2025 taxes by $1,375, which explains its appeal when costs rise. The trade-off is a balance sheet that shows inventory at older, lower costs. Jennings et al. (1996) found that LIFO cost of goods sold explained market values better than FIFO amounts, while the LIFO balance sheet figure needed the reserve added back to be useful, which is why companies using LIFO disclose the reserve.
Part C: Lower of Cost and Net Realizable Value
In December a competitor cut the price of a similar pack, and Kittatinny expects to sell its remaining Ridgeline 40s for $68 each, with $9 per unit of selling costs. Net realizable value is therefore $59 per unit. Under FIFO, the 600 units on hand include 500 that cost $61 and 100 that cost $58.
The October layer is written down by $2 a unit, a $1,000 loss recognized in 2025, usually within cost of goods sold. The July units stay at cost because their net realizable value exceeds it. Companies using FIFO or average cost apply this test; LIFO users apply the older lower of cost or market rule instead (Financial Accounting Standards Board [FASB], 2015). U.S. GAAP does not allow the write-down to be reversed if prices recover.
| Layer | Units | Cost | Net realizable value | Carrying amount |
|---|---|---|---|---|
| October purchase | 500 | $61 | $59 | $59 |
| July purchase | 100 | 58 | 59 | 58 |
Part D: Gross Profit Method for the Fire Loss
The warehouse fire on February 14, 2026 made a physical count of the lost goods impossible. The gross profit method estimates what inventory should have been.
The 62% cost ratio comes from Kittatinny's historical gross profit rate of 38%. The estimate supports the insurance claim and the subsequent event disclosure, and it is reasonable only if the recent margin resembles the historical one.
| Estimate | Amount |
|---|---|
| Inventory, January 1, 2026 | $318,000 |
| Purchases, January 1 to February 14 | 142,000 |
| Goods available | 460,000 |
| Sales of $240,000 times the 62% cost ratio | (148,800) |
| Estimated inventory at the date of the fire | 311,200 |
| Inventory salvaged, counted at cost | (226,200) |
| Estimated inventory lost | $85,000 |
References
Financial Accounting Standards Board. (2015). Inventory (Topic 330): Simplifying the measurement of inventory (Accounting Standards Update No. 2015-11).
Jennings, R., Simko, P. J., & Thompson, R. B., II. (1996). Does LIFO inventory accounting improve the income statement at the expense of the balance sheet? Journal of Accounting Research, 34(1), 85-109. https://doi.org/10.2307/2491333
Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2020). Intermediate accounting (10th ed.). McGraw-Hill Education.
ACC 2010 Module 5 instructions, in plain terms
Written Assignment 5 covers Module 5, Inventories, which spans two textbook chapters on measuring inventory and on the additional issues of valuation and estimation. Expect numbered exercises first and longer problems after, drawn from the two inventory chapters, each answered with full working. Expect cost flow items under both periodic and perpetual records, LIFO reserves and liquidations, markdowns to net realizable value, the gross profit and retail estimates and, now and then, an inventory error that reverses the next year. Here a single backpack line carries every part, so the cost flow methods can be compared on identical purchases. Some versions also ask about inventory errors and how they reverse in the following year.
How the ACC 2010 Module 5 example is put together
The Ridgeline 40's four cost layers go into one table, and a second table prices the year's sales three ways with the multiplication written in each cell, followed by a few sentences on why rising costs pull the methods apart. Part B turns the FIFO and LIFO gap into a reserve, prices its tax saving and cites evidence on what investors make of LIFO numbers. Part C applies the net realizable value test layer by layer and states which rule applies to which methods. Part D uses the gross profit method to estimate the fire loss, linking it to the subsequent event disclosed in the balance sheet assignment. Figures from the balance sheet and fire disclosure reappear unchanged, so the assignments read as one company's year.
ACC 2010 Module 5 rubric: what earns full marks
Inventory homework counts within the 30 percent pool that five of the six written assignments share. Graders trace each method's ending units back to the layers they came from; a correctly computed weighted-average cost; the LIFO reserve stated and interpreted; the right application of net realizable value, including which units are written down and by how much; and a gross profit estimate that uses the cost ratio rather than the gross profit ratio. Explanations of why methods differ, and of when each valuation rule applies, earn credit beyond the arithmetic. Complete, labeled schedules make partial credit possible if one figure is off. A short written comparison of the methods, not just three numbers, adds the interpretation mentors reward.
ACC 2010 Module 5 help: mistakes that cost marks
Inventory assignments trip students up in predictable places. Under LIFO periodic, the ending inventory is the oldest cost layers, not the last purchase. The weighted-average cost uses total goods available, including beginning inventory. Net realizable value is the selling price less costs to sell, not the selling price alone, and the test is applied to layers or items, not to the whole inventory at once unless the instructions allow it. In the gross profit method, multiply sales by the cost ratio, which is one minus the gross profit rate. Lay out each method in its own column. If your inventory items differ, a writer can cost them by each method for you, with the first custom set free.
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ACC 2010 Module 5 questions, answered
Where can I find a free ACC 2010 Module 5 sample paper?
Scroll up for the finished inventory assignment: FIFO, LIFO and weighted average for one product line, the LIFO reserve, a net realizable value write-down and a gross profit estimate of a fire loss.
Which inventory method gives the highest profit when costs rise?
First in, first out: when prices climb, it charges the cheapest early purchases to cost of sales and leaves the dearest recent ones in stock.
What is the LIFO reserve?
The difference between inventory measured at FIFO and at LIFO, which LIFO companies disclose so users can compare them with FIFO companies.
How does the lower of cost and net realizable value rule work?
If what a company expects to net from selling goods drops beneath what they cost, it marks them down to that net amount; firms on FIFO or average cost use this test.
How does the gross profit method estimate inventory?
It subtracts estimated cost of goods sold, sales times one minus the gross profit rate, from goods available for sale.