In a Zume Pizza delivery truck that uses a combination of robots, AI, and GPS in pizza preparation and delivery, what will be capitalized versus expensed? Original blog posting (March 7, 2017)

Zume Pizza Based in Mountain View, California Pizza truck holds 56 ovens that are connected to ordering system and GPS Robots help make the pizzas Pizzas are put in the oven four minutes before truck reaches the customer’s house

Zume Pizza started in Mountain View, California

Zume Pizza truck

Plain white panel trucks are customized to become Zume Pizza trucks Source of plain Chevy Spark photo: www.caranddriver.com

Customer orders pizza

Humans toss the dough, cut vegetables, and put on toppings

Robots put on pizza sauce

Truck has 56 ovens. Each oven is connected to order system and GPS

Robots put pizzas in oven exactly four minutes before truck reaches the house

Humans pull out pizza and put it into the cutter

Pizza is delivered

Question 1 Would Zume capitalize or expense the cost of the white panel truck itself?

Question 2 Would Zume capitalize or expense the cost of the 56 pizza ovens inside the truck?

Question 3 Would Zume capitalize or expense the cost of the custom paint job on the exterior of the truck?

Question 4 If a Zume Pizza truck needs replacement tires after it has been driven 75,000 miles, is the cost of those tires capitalized or expensed by Zume? Why does it matter?

Question 5 What is the impact of capitalizing an item on the balance sheet? On the income statement?

Question 6 What is the impact of expensing an item on the balance sheet? On the income statement?

Question Recap Would Zume capitalize or expense the cost of the white panel truck itself? Would Zume capitalize or expense the cost of the 56 pizza ovens inside the truck? Would Zume capitalize or expense the cost of the custom paint job on the exterior of the truck? If a Zume Pizza truck needs replacement tires after it has been driven 75,000 miles, is the cost of those tires capitalized or expensed by Zume? Why does it matter? What is the impact of capitalizing an item on the balance sheet? On the income statement? What is the impact of expensing an item on the balance sheet? On the income statement?

For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/ Questions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu