| Course | ACC-2010 Intermediate Accounting I |
|---|---|
| Module | Module 6 |
| Paper type | Written Assignment 6: acquiring, depreciating, capitalizing interest on and impairing long-lived assets |
| Length | About 720 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 6
Kittatinny Outdoor Gear, Inc.: A Lump-Sum Purchase, Capitalized Interest, an Impairment and the Cost of a Patent
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.: A Lump-Sum Purchase, Capitalized Interest, an Impairment and the Cost of a Patent
Introduction
In 2026 Kittatinny bought a second plant, began building a distribution center and reviewed its older assets. Each step raises a measurement question covered in Module 6: what an asset costs, how that cost is spread over its life, and what happens when the asset is worth less than its carrying amount.
Part A: Lump-Sum Purchase
On January 2, 2026, Kittatinny paid $1,500,000 for land, a building and equipment in Warren County, plus $30,000 of legal and closing costs, for a total cost of $1,530,000. An appraisal valued the land at $400,000, the building at $1,100,000 and the equipment at $200,000, $1,700,000 in all. Cost is allocated by relative appraised value, and since total cost is 90% of total appraised value, each asset is recorded at 90% of its appraisal (Spiceland et al., 2020).
| Asset | Appraised value | Share | Recorded cost |
|---|---|---|---|
| Land | $400,000 | 400/1,700 | $360,000 |
| Building | 1,100,000 | 1,100/1,700 | 990,000 |
| Equipment | 200,000 | 200/1,700 | 180,000 |
| Total | $1,700,000 | 1,700/1,700 | $1,530,000 |
Part B: Depreciation Methods
The equipment has a five-year life, a $20,000 residual value and an expected 40,000 hours of use. In 2026 it ran 9,500 hours.
Double-declining-balance ignores residual value in the rate but never depreciates below it; in 2027 it applies 40% to the $108,000 book value. The method that best fits is the one matching how the equipment's benefits are used up. Because output varies with seasonal demand, units of production probably reflects Kittatinny's pattern most faithfully. Whatever method is chosen, the total depreciation over five years is the same $160,000; only the timing differs, and with it the reported profit in each year.
| Method | 2026 calculation | 2026 depreciation | 2027 depreciation |
|---|---|---|---|
| Straight-line | ($180,000 minus $20,000) / 5 | $32,000 | $32,000 |
| Double-declining-balance | $180,000 x 40% | 72,000 | 43,200 |
| Units of production | ($160,000 / 40,000 hours) x 9,500 | 38,000 | Depends on hours |
Part C: Capitalized Interest
Kittatinny is building a distribution center through 2026. Weighted-average accumulated expenditures for the year are $1,500,000. A construction loan of $1,000,000 at 7% is tied to the project, and the company's other debt is a $450,000 note at 8% and $400,000 of bonds at 6%.
Actual interest incurred is $70,000 plus $60,000, or $130,000. Kittatinny capitalizes the lesser amount, $105,294, as part of the building's cost and expenses the remaining $24,706. The logic is that interest on money spent to build an asset is as much a cost of the asset as concrete and steel.
| Component | Calculation | Avoidable interest |
|---|---|---|
| Specific borrowing | $1,000,000 x 7% | $70,000 |
| Excess expenditures at the weighted rate on other debt | $500,000 x ($36,000 + $24,000) / $850,000 = $500,000 x 7.0588% | 35,294 |
| Total avoidable interest | Sum of both components | $105,294 |
Part D: Impairment of a Product Line
Sales of Kittatinny's trail-camera line collapsed when smartphone apps replaced it. The line's equipment has a carrying amount of $410,000.
The loss is reported in operating income, and the equipment's new $330,000 basis is depreciated over its remaining life. U.S. GAAP does not permit the loss to be reversed later. Because managers have discretion over timing, Riedl (2004) found that write-offs taken during changes in management and reporting incentives looked more like strategic choices than reflections of economic decline, which is why auditors examine the cash flow forecasts behind them.
| Step | Test | Result |
|---|---|---|
| Recoverability | Undiscounted future cash flows of $380,000 compared with the $410,000 carrying amount | Not recoverable, so impaired |
| Measurement | Carrying amount less fair value of $330,000 | Impairment loss of $80,000 |
Part E: Intangible Assets
1. Research and development costs of $95,000 for a new tent fabric are expensed as incurred, even though they may produce future benefits, because those benefits are uncertain. Lev and Sougiannis (1996) argued that capitalized R&D would be value relevant, but U.S. GAAP still requires expensing internally generated research.
2. The patent purchased for $48,000 in 2025, with eight years of remaining useful life, is amortized at $6,000 a year.
3. Legal fees of $12,000 to successfully defend the patent are capitalized, because the defense preserved the asset's value; unsuccessful defense costs would be expensed along with writing off the patent.
4. Goodwill from the Warren County purchase is zero, because Kittatinny bought assets, not a business. Had it acquired a business, goodwill would not be amortized but tested for impairment at least annually.
References
Lev, B., & Sougiannis, T. (1996). The capitalization, amortization, and value-relevance of R&D. Journal of Accounting and Economics, 21(1), 107-138. https://doi.org/10.1016/0165-4101(95)00410-6
Riedl, E. J. (2004). An examination of long-lived asset impairments. The Accounting Review, 79(3), 823-852. https://doi.org/10.2308/accr.2004.79.3.823
Spiceland, J. D., Nelson, M. W., & Thomas, W. B. (2020). Intermediate accounting (10th ed.). McGraw-Hill Education.
Reading the ACC 2010 Module 6 assignment instructions
The final ACC-2010 homework set is about buildings, machines, patents and goodwill. The two chapters on property and intangibles supply its numbered exercises and problems, each answered with complete working. Items usually cover the cost of acquired assets, including lump-sum purchases and self-constructed assets with capitalized interest; depreciation, depletion and amortization methods; impairment of property and intangibles; and the treatment of research and development, patents and goodwill. The module also feeds the final exam, which covers Modules 4 through 6. As before, one fictional manufacturer supplies every number, so the 2026 figures follow from the 2025 balance sheet.
How this ACC 2010 Module 6 example is built
Each of the five parts pairs a short set of facts with a table that shows the calculation and result, followed by a sentence or two of explanation. Part A allocates a lump-sum price by relative appraised values. Part B compares three depreciation methods for the same equipment and recommends one based on how the asset is used. Part C computes avoidable interest from specific and general borrowing and compares it with actual interest. Part D applies the two-step impairment test and adds research on the timing of write-offs. Part E answers four intangible asset questions with the treatment and the reasoning behind it. The arithmetic is complete enough that a mentor can trace every figure.
Reading the ACC 2010 Module 6 grading rubric
Five of ACC-2010's six homework sets, this property set included, split 30 percent of the final grade. Here, as in every set, a right number without its working earns only part of the credit. On this module, they check that lump-sum costs include acquisition costs and are allocated by fair value, that each depreciation method handles residual value correctly, that capitalized interest is the lesser of avoidable and actual interest using the right weighted rate, that impairment follows the recoverability test before measurement and that research costs, patents and defense costs are treated as GAAP requires. Brief explanations of the reasoning, especially on intangibles, show understanding the final exam will also test, and they help a mentor award credit when a figure is wrong but the approach is right. Clear tables with labeled steps help secure partial credit.
ACC 2010 Module 6 help from the desk
The usual errors here are mechanical. Students subtract residual value before applying the double-declining-balance rate, forget acquisition costs in a lump-sum purchase, or capitalize all interest instead of the avoidable amount. In impairment problems, compare undiscounted cash flows with the carrying amount first, and measure the loss against fair value only if the asset fails that test. Remember that research is expensed, purchased patents are capitalized and successful defense costs are added to the patent. For capitalized interest, compute the weighted rate on general borrowings only, excluding the construction loan. Check each answer against the rule, not intuition. Your own long-lived asset problems can be worked in the same tables; ask for the free first sample.
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ACC 2010 Module 6 questions, answered
Where can I find a free ACC 2010 Module 6 sample paper?
The last ACC-2010 assignment is solved above: a lump-sum allocation, three depreciation methods, capitalized interest, an impairment test and intangible asset decisions.
How is a lump-sum purchase allocated?
Total cost, including acquisition costs, is divided among the assets in proportion to their relative fair or appraised values.
How much interest is capitalized on a self-constructed asset?
The lesser of avoidable interest on weighted-average accumulated expenditures and the actual interest incurred during construction.
How do you test an asset for impairment under U.S. GAAP?
First compare undiscounted future cash flows with the carrying amount; if they are lower, record a loss equal to the carrying amount minus fair value.
Are research and development costs capitalized?
Under U.S. GAAP, internally generated research and development costs are expensed as incurred, while purchased patents are capitalized.