| Course | ACC-6040 Fundamentals of Accounting I |
|---|---|
| Module | Module 5 |
| Paper type | Written Assignment 5: skate stock, chillers, a franchise and a depletion contrast |
| Length | About 747 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | Master of Science in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 6040 Module 5
Skates on the Shelf and Chillers in the Floor: Inventory and Long-Lived Assets at Garden State Ice Rinks
Student Name
Master of Science in Accounting, Thomas Edison State University
ACC-6040: Fundamentals of Accounting I
Mentor Name
Month Day, Year
Skates on the Shelf and Chillers in the Floor: Inventory and Long-Lived Assets at Garden State Ice Rinks
Introduction
Goods held for sale turn into cost of goods sold on the day they leave; assets held for use are expensed gradually as depreciation, amortization or depletion. In each case, accountants must choose a method for allocating cost, and the choice affects reported profit and asset values (Libby et al., 2017).
Problem 1: Pro Shop Skates
The shops sold 270 pairs at $240, for revenue of $64,800, leaving 60 pairs.
FIFO reports higher profit because costs rose and the oldest, cheaper skates went to cost of goods sold. A newer model came out in December, so the 60 pairs left are now expected to fetch $170 each less $15 of selling cost, $155 a pair net. Under FIFO, each pair costs $160, so inventory is written down by $5 a pair, $300, recognized in cost of goods sold. Under weighted average, cost of $152.73 is below net realizable value, so no write-down is needed.
U.S. GAAP also permits LIFO, which would charge the latest, dearer skates to cost of sales and cut both profit and tax; IFRS bans it, and the tax rules make any company using LIFO for taxes use it in its books too. Since a 2015 update, FIFO and average cost stock is cut to net realizable value whenever that value drops under cost (Financial Accounting Standards Board, 2015).
| Date | Pairs | Cost per pair | Total |
|---|---|---|---|
| January 1 inventory | 60 | $140 | $8,400 |
| March purchase | 120 | 150 | 18,000 |
| September purchase | 150 | 160 | 24,000 |
| Available | 330 | | $50,400 | |
| Cost flow | Skates left at year end | Cost of skates sold | Margin on skates |
| FIFO: 60 pairs at the latest $160 | $9,600 | $40,800 | $24,000 |
| Weighted average: $50,400 / 330 = $152.73 a pair | 9,164 | 41,236 | 23,564 |
Problem 2: Depreciating the Chillers
The Parsippany rink's refrigeration plant cost $720,000, including installation, with an eight-year life, a $40,000 residual value and an expected 32,000 operating hours. It ran 4,600 hours in 2027.
The chillers run longest in winter, when public demand is highest, so units of production best matches cost to use. Garden State chose straight-line for simplicity; the choice changes reported income but not the asset's total cost or the company's cash flows.
Whatever method is chosen, total depreciation over the chillers' life is the same $680,000, cost less residual value; the methods change only when the expense is recognized, which affects reported profit in each year and the comparison with rinks that chose differently.
| Method | 2027 depreciation | Basis |
|---|---|---|
| Straight-line | $85,000 | ($720,000 minus $40,000) / 8 |
| Double-declining-balance | 180,000 | $720,000 x 25% |
| Units of production | 97,750 | ($680,000 / 32,000 hours) x 4,600 hours |
Problem 3: An Intangible and a Contrast With Natural Resources
Garden State paid $90,000 for the exclusive right to have the regional youth hockey league play its home games at the Parsippany rink and carry the rink's name for five years. The right is an intangible asset with a definite life, amortized at $18,000 a year. Had the company owned a gravel pit to supply its parking lots, its cost would instead be depleted by units extracted, cost per ton times tons removed, because natural resources are used up physically rather than over time.
The naming right is amortized evenly over its contract term because its benefit is consumed evenly. If the league folded early, the remaining balance would be tested for impairment and written off, since the right would no longer produce the advertising benefit it was bought for.
Problem 4: Turnover Ratios
Skates turn over about every 81 days, reasonable for a seasonal product but long enough that the new model release created a write-down. A fixed asset turnover of 1.42 reflects a capital-intensive business: each dollar of rink equipment produces $1.42 of revenue. As the Parsippany rink fills up, turnover should rise, since much of its cost is fixed. Riedl (2004) found that the timing of long-lived asset write-downs often reflected managers' reporting incentives as well as economic conditions, which is why impairment testing of rink equipment would deserve scrutiny if demand fell.
Both ratios depend on accounting choices made earlier: FIFO, the write-down and the depreciation method each change the denominators, so comparisons with other rinks should note the methods they use.
| Ratio | Calculation | Result |
|---|---|---|
| Inventory turnover, FIFO | $40,800 / average inventory of $9,000 | 4.5 times, about 81 days |
| Fixed asset turnover | Net revenue of $2,128,400 / average net fixed assets of $1,500,000 | 1.42 times |
References
Financial Accounting Standards Board. (2015). Inventory (Topic 330): Simplifying the measurement of inventory (Accounting Standards Update No. 2015-11).
Libby, R., Libby, P. A., & Hodge, F. (2017). Financial accounting (9th ed.). McGraw-Hill Education.
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
What the ACC 6040 Module 5 instructions ask for
Written Assignment 5 covers Module 5, which spans the cost of stock sold and stock on hand as well as equipment, intangible rights and natural resources, and counts within the 25 percent of the ACC-6040 grade shared by five written assignments. Expect inventory costing under FIFO, LIFO and weighted average, lower of cost or net realizable value, inventory turnover, capitalization of asset costs, depreciation methods, amortization of intangibles, depletion and fixed asset turnover. All of the data here are composite; they continue the invented rink operator, adding its pro shops and new equipment so the figures fit its earlier statements. A write-down test and a side-by-side of depreciation methods are almost always included. Prompts usually give purchase layers for one product line, a new asset to depreciate three ways, an intangible to amortize and turnover ratios to compute.
How this ACC 6040 Module 5 example is built
The introduction frames the module as deciding when costs become expenses. Problem 1 sets out skate purchases, costs the skates both ways and runs the write-down test on each, and only the FIFO figure has to come down. Problem 2 compares three depreciation methods for the chillers and explains which fits the pattern of use. Problem 3 amortizes an intangible right and contrasts depletion. Problem 4 computes and interprets two turnover ratios, with research on the timing of write-downs. Each cost flow and depreciation method is shown with its effect on income, so the paper explains the choice rather than only computing it. The comparison tables let the reader see each method's effect on income at a glance, which is how the textbook frames the choice.
Reading the ACC 6040 Module 5 grading rubric
Inventory and long-lived asset problems earn a share of that same 25 percent. Mentors check inventory costs under each method, the net realizable value test applied correctly, depreciation computed with residual value handled properly for each method, amortization and depletion distinguished and turnover ratios computed with averages and interpreted. Explanations of why methods differ and which fits the business show understanding. Complete tables with the arithmetic visible make it easy to award partial credit when one figure is off. Comparison tables that show how each method changes cost of goods sold and net income make the analysis clear and easy to grade.
Common ACC 6040 Module 5 mistakes, and how to avoid them
Points go on taking residual value off before applying the double-declining rate, on ending rather than average balances in turnover and on testing the wrong cost figure against net realizable value. Lay out each method in its own row with the calculation shown. Remember that intangibles with definite lives are amortized and natural resources are depleted by units. Interpret every ratio in a sentence. Check the write-down against net realizable value item by item. A free first sample of your own ACC-6040 Module 5 problems is available on request.
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ACC 6040 Module 5 questions, answered
Where can I find a free ACC 6040 Module 5 sample paper?
The rink's inventory and long-lived asset assignment is printed above: FIFO and average costing with a write-down, three depreciation methods, an intangible, depletion and turnover ratios.
When is inventory written down?
When the price it should sell for, less the cost of selling it, has dropped under its FIFO or average cost.
How is double-declining-balance depreciation computed?
Apply twice the straight-line rate to the asset's book value each year, ignoring residual value in the rate but not depreciating below it.
What is depletion?
The allocation of a natural resource's cost based on units extracted, such as cost per ton times tons removed.
What does fixed asset turnover show?
How much revenue each dollar of net property, plant and equipment generates, a measure of how efficiently long-lived assets are used.