Business
Engineering
Math
Science
Social Science
Cornerstones of Financial Accounti...
Solutions
Cornerstones of Financial Accounti...
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.
* A requirement of the Occupational Safety and Health Administration that will add to maintenance costs over the remaining life of the pump.
Required:
CONCEPTUAL CONNECTION Classify each cost as part of the overhaul or as an expense. Be sure to explain your reasoning for each classification.
Concept introduction:
Capital Expenditures:
Capital expenditures are those which provide future economic benefits by improving the life, quality, efficiency of an asset. Some of the examples of capital expenditures are major improvements to the existing asset, remodelling and additions to the existing facility.
Revenue Expenditures:
Revenue expenditures occur frequently and they do not increase the future economic benefits from the asset and in fact they are expensed in the same accounting period in which the expenses are incurred. Some of the examples of revenue expenditures are maintenance and repair costs and costs involved in replacing minor items.
Requirement 1:
Classify the cost as overhaul or as an expense along with reasons for each classification.
The following are the classification of elements of cost along with reasons:
New pump motor is a part of the overhaul since it is bought as an extensive overhaul for its water pumps and should be capitalized.
Repacking of bearings (performed monthly) should be expensed since it is a monthly expense incurred as part of maintenance of water pumps.
New impeller (rotating component of a pump) is a part of the overhaul since it is bought as an extensive overhaul for its water pumps and should be capitalized.
Painting of pump housing (performed annually) should be expensed since it is an ordinary repair and maintenance expense.
Replacement of pump foundation is a part of the overhaul since it is done to improve the performance of an existing asset hence it should be capitalized.
New wiring (needed every 5 years) is a part of the overhaul since it is done an addition to the existing asset hence it should be capitalized...
Chapter 7 Solutions
Additional Business Solutions
Find more solutions based on key concepts
Show solutions addONeil Office Supplies has a fleet of automobiles and trucks for use by salespersons and for delivery of office ...
Corporate Financial Accounting
Payroll accounts and year-end entries The following accounts, with the balances indicated, appear in the ledger...
Financial & Managerial Accounting
How does Internet commerce simplify the world of E-business?
Accounting Information Systems
Kayla can cook dinner in 30 minutes and wash the laundry in 20 minutes. Her roommate takes half as long to do e...
Principles of Economics (MindTap Course List)
Use the theory of liquidity preference to explain how a decrease in the money supply affects the aggregate-dema...
Brief Principles of Macroeconomics (MindTap Course List)
Go back to the summary page to see an estimate of the companys beta. What is the companys beta? What was the so...
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Communication Technology E-Mail Team. Here is an idea to shorten tedious meetings: Ban sitting down A growing n...
Essentials of Business Communication (MindTap Course List)
What are the two main causes of market failure? Give an example of each.
Principles of Microeconomics (MindTap Course List)
For purposes of this exercise, lets take a closer look at the stock of Exxon Mobil Corporation (XOM). Use websi...
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
In what way do organization charts create a picture of an organization?
Foundations of Business (MindTap Course List)
DLEON INC., PART I FINANCIAL STATEMENTS AND TAXES Donna Jamison, a 2011 graduate of the University of Florida, ...
Fundamentals of Financial Management (MindTap Course List)
Fretting is a wear process that results from tangential oscillatory movements of small amplitude in machine par...
Probability and Statistics for Engineering and the Sciences
(Definition of Economics) What determines whether or not a resource is scarce? Why is the concept of scarcity i...
ECON: MICRO4 (New, Engaging Titles from 4LTR Press)
The Commerce Department reported receiving the following applications for the Malcolm Baldrige National Quality...
STATISTICS F/BUSINESS+ECONOMICS-TEXT
The problem of time inconsistency applies to fiscal policy as well as to monetary policy. Suppose the governmen...
Principles of Macroeconomics (MindTap Course List)
Analyze Target The following data (in millions) are taken from the financial statements of Target Corporation (...
Financial And Managerial Accounting
Describe the Big Data phenomenon.
Database Systems: Design, Implementation, & Management
The United States has implemented few laws addressing personal privacy. True or False?
Fundamentals of Information Systems
The typical information systems organization is typically divided into three functions, including support, deve...
Principles of Information Systems (MindTap Course List)
What are some of the tasks at which robots excel? Which human tasks arc difficult for robots to master? What fi...
Fundamentals of Information Systems
What was important about RAND Report R-609?
Principles of Information Security (MindTap Course List)
Use the contents of Figure 2.1 to work Problems 13. Write the business rule(s) that govern the relationship bet...
Database Systems: Design, Implementation, & Management
How is the Internet of Everything different from the Internet of Things?
Principles of Information Systems (MindTap Course List)
An air-conditioning unit has a cooling capacity of 24,000 Btu/h. If the unit has a rated energy efficiency rati...
Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)
The grain size distributions of two soils, A and B are shown in Figure 2.25. Find the percentages of gravels, s...
Fundamentals of Geotechnical Engineering (MindTap Course List)
A stepped shaft consisting of solid circular segments having diameters D1= 2.0 in, and D2= 2.4 in. (see figure)...
Mechanics of Materials (MindTap Course List)
What are the two types of EDM machines?
Precision Machining Technology (MindTap Course List)
Which of the following statements about the SRS warning lamp is not true? When the ignition is first turned on,...
Automotive Technology: A Systems Approach (MindTap Course List)
What is an alert roster? What is an alert message? Describe the two ways they can be used.
Management Of Information Security
What is a DBMS? Briefly describe the components of a DBMS.
Systems Analysis and Design (Shelly Cashman Series) (MindTap Course List)
If the couple applied to the steering wheel is to have the magnitude C=120lbin., determine F.
International Edition---engineering Mechanics: Statics, 4th Edition
Several systems and processes are described below. For each of them, determine whether the system is at steady ...
Fundamentals of Chemical Engineering Thermodynamics (MindTap Course List)
What color fluorescent lamps are recommended for residential installations?
EBK ELECTRICAL WIRING RESIDENTIAL
Refer to Problem 2.C.1. Results of the sieve analysis for Soils A, B, and C are given below. To obtain a more r...
Principles of Geotechnical Engineering (MindTap Course List)
What is the average amount of movement necessary to cause the contacts of a micro-limit switch to change positi...
Electric Motor Control
Two members of Creenpeace climb the stack of your waste-to-energy plant and chain themselves to it. You are the...
Solid Waste Engineering
What is used to measure clutch pedal play?
Automotive Technology
Compute the nominal compressive strength for a WT10.591 with an effective length of 18 feet with respect to eac...
Steel Design (Activate Learning with these NEW titles from Engineering!)
List jobs that may require, or jobholders who may benefit from, obtaining a security certification.
Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List)
While making some configuration changes to a clients network, you need to connect your laptop to a routers cons...
Network+ Guide to Networks (MindTap Course List)
