CUSTOMER DEPOSITS. Carrington Municipal Electric requires each new customer to pay a $600 “hookup fee” to offset the cost of extending service lines and installing meters. The fee is refundable when the customer moves to another location, dies, or discontinues service. Carrington is a small town in a rural region with a stable population.

REQUIRED:

1. On June 15, 19x0, $600 is received from each of two new customers ($1,200 in total), Robert Nelson and Arnold Metz, and $600 is paid to the estate of Ernest Walton.

Prepare the journal entries to record these cash transactions.

2. How should customer deposits be reported in the utility’s balance sheet? The controller for the utility argues that these customer deposits are more like capital stock than long-term liabilities; do you agree with him?