Question: Warrick Water Company a privately owned business supplies water to

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.
Element of Cost Classification and Explanation
New pump motor
Repacking of bearings (performed monthly)
New impeller
Painting of pump housing (performed annually)
Replacement of pump foundation
New wiring (needed every five years)
Installation labor, motor
Installation labor, impeller
Installation labor, wiring
Paint labor (performed annually)
Placement of fence around pump*

Conceptual Connection: Classify each cost as part of the overhaul or as an expense. Be sure to explain your reasoning for each classification.

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  • CreatedSeptember 22, 2015
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