Question

Blue Corporation commenced operations in early 2020. The corporation incurred $64,000 of costs such as fees to underwriters, legal fees, state fees, and promotional expenditures during its formation Prepare journal entries to record the $64,000 expenditure and 2020 amortization, if any. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry for the account titles and enter for the amounts.)

Answer 1

To record the $64,000 expenditure and 2020 amortization, journal entries need to be created. The expenditure should be debited to the Formation Costs Expense Account and credited to Cash. The 2020 amortization should be debited to the Amortization Expense account and credited to Accumulated Amortization.

Step-by-step explanation:

To record the $64,000 expenditure and 2020 amortization, we need to create journal entries. The initial entry would be:

Debit: Formation Costs Expense Account - $64,000

Credit: Cash - $64,000

This entry records the expenditure made during the formation of Blue Corporation. Since it is an expense, it is debited, and since it was paid in cash, cash is credited.

In 2020, we need to amortize the formation costs over its useful life. Let's assume the useful life is 4 years. We will amortize equal amounts each year. The amortization entry for 2020 would be:

Debit: Amortization Expense - $16,000 (=$64,000/4)

Credit: Accumulated Amortization - $16,000 (=$64,000/4)

This entry records the amortization of the formation costs. Amortization expense is an operating expense, so it is debited. Accumulated amortization is a contra-asset account, so it is credited.