Final Answer:
The journal entry to record the $48,500 expenditure for Martinez Corporation's formation costs would be:
Formation Costs Expense $48,500
Cash/Bank $48,500
No amortization expense is recorded for formation costs in 2020 as they are typically expensed when incurred.
Step-by-step explanation:
In accounting, formation costs incurred during the initial setup of a corporation are expensed as incurred and are not usually amortized over time. Hence, the $48,500 expenditure for fees to underwriters, legal fees, state fees, and promotional expenditures incurred during Martinez Corporation's formation is expensed immediately upon occurrence. This is reflected in the journal entry by debiting the Formation Costs Expense account and crediting the Cash/Bank account for $48,500 each, representing the expenditure made and the corresponding reduction in the company's cash/bank balance.
Unlike certain other intangible assets or costs, such as goodwill or patents, formation costs are not typically amortized because they are considered to have no determinable useful life. Therefore, no amortization expense is recorded for the formation costs in 2020. Instead, they are expensed in the period they are incurred, aligning with the principle of matching expenses to the period they generate revenue. This treatment simplifies accounting for these costs by recognizing them immediately rather than spreading their expense over multiple periods through amortization.