Recognizing Intangible Assets Lazar Corporation was organized on January 1, 2001, and immediately issued 30,000 shares of $10 par value common stock and 40,000 shares of $5 par value preferred stock at par value. Total cash received for the shares was $500,000. The first act of the company once it started operations was to purchase the rights to a self-cleaning car wax. The total payment for exclusive production rights for 5 years was $280,000. During the next 5 months, Lazar Corporation spent $110,000 on research and development on a special chrome polish that would instantly remove rust spots from automotive chrome. Although patent clearance has not been received, Lazar plans to market the chrome cleaner as a companion product to the car wax. To immediately produce both products, Lazar obtained a bank loan of

$150,000, and paid $213,000 for the assets and liabilities of Slippery Wax Company. At that time, Slippery Wax held assets with a fair value of $350,000 and liabilities of $220,000.

a. Which, if any, of the costs incurred by Lazar Company qualify as research and development costs? How are these costs to be accounted for?

b. When is goodwill recognized? Should Lazar Corporation recognize any goodwill? How should Lazar account for goodwill?

c. Which, if any, of the costs qualify for capitalization as other intangible assets? What amounts should be capitalized? How are these costs to be accounted for?

d. Prepare a balance sheet for Lazar Corporation following completion of its acquisition of Slippery Wax Company.

e. If Lazar Corporation were to come to the bank where you were employed as a loan officer and apply for an additional loan of $50,000, what factors would you look at in determining whether to grant the loan?