PepsiCo, Inc., dominates the snack-food industry with its Frito-Lay brand. Assume that PepsiCo, Inc., purchased Taco Chips,

Question:

PepsiCo, Inc., dominates the snack-food industry with its Frito-Lay brand. Assume that PepsiCo, Inc., purchased Taco Chips, Inc., for $8.5 million cash. The market value of Taco Chips' assets is $14 million, and Taco Chips has liabilities of $9 million.

Required

1. Compute the cost of the goodwill purchased by PepsiCo.

2. Explain how PepsiCo will account for goodwill in future years.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...