Capital versus Revenue Expenditure Warrick Water Company, a privately owned business, supplies water to several communities. Warrick has just performed an extensive overhaul on one of its water pumps. The overhaul is expected to extend the life of the pump by 10 years. The residual value of the pump is unchanged. You have been asked to determine which of the following costs should be capitalized as a part of this overhaul. Those costs not capitalized should be expensed. Required: Conceptual Connection: Classify each cost as part of the overhaul or as an expense. Be sure to explain your reasoning for each classification. New pump motor

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

blank Repacking of bearings (performed monthly)

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blank New impeller (rotating component of a pump)

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blank Painting of pump housing (performed annually)

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

blank Replacement of pump foundation

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blank New wiring (needed every 5 years)

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blank Installation labor, motor

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blank Installation labor, impeller

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blank Installation labor, wiring

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blank Paint labor (performed annually)

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blank Placement of fence around pump* (*A requirement of the Occupational Safety and Health Administration that will add to maintenance costs over the remaining life of the pump.)

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