Roanoke Manufacturing placed a robotic arm on a large assembly machine on January 1, 2019. At that time, the assembly machine was expected to last another 3 years. The following information is available concerning the assembly machine.
Cost, assembly machine ...................................... $750,000
Accumulated depreciation, 1/1/2019 ........................ 480,000
The robotic arm cost $225,000 and was expected to extend the useful life of the machine by 3 years. Therefore, the useful life of the assembly machine, after the arm replacement, is 6 years. The assembly machine is expected to have a residual value of $120,000 at the end of its useful life.
Required:
1. Prepare the journal entry necessary to record the addition of the robotic arm.
2. Compute 2019 depreciation expense for the machine using the straight-line method, and prepare the necessary journal entry.
3. What is the book value of the machine at the end of 2019?
4. What would have been the effect on the financial statements if Roanoke had expensed the addition of the robotic arm?