S7-12. (Learning Objectives 1, 6: Measuring and recording goodwill; Reporting cash flows) Hector, Inc., dominates the snack-food industry with its Tasty-Chip brand. Assume that Hector, Inc., purchased Crunchy Snacks, Inc., for $10.8 million cash. The market value of Concord Snacks’ assets is $18 million, and Concord Snacks has liabilities of $12 million.

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

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