Problem
Johnson Pizza has a Pizza- making robotic machine that was built by former SpaceX engineers. More than 23 former SpaceX employees work at Stellar Pizza. The Pizza- making robot can produce a pizza every 45 seconds. A pizza can be customized, baked and topped in less than five minutes by the robotic machine.
Johnson Pizza will be in operation in the spring of 2022 in Los Angeles. The pizza-making robot will be fit into the back of a track.
Task
A. Would Johnson capitalize or expense the cost of the robotic pizza-making machine?
B. Would Johnson capitalize or expense the cost of the truck to house the robotic pizza-making machine?
C. Would Johnson capitalize or expense the cost of the ingredients used to top the pizza (i.e pepperoni, mushrooms, Onions and cheese)?
D. If Johnson needs to replace the controller cables after the robotic machines is used for 2,000 hours, is the cost of those controller cables capitalized or expensed by Johnson? Why does it matter?
E. What is the impact of capitalizing an item on the balance sheet? On the income statement?
F. What is the impact of expensing an item on the balance sheet? On the income statement?