How should Be-Dee Corp adjust the understated defined benefit pension liability discovered during acquisition?

When addressing an understated defined benefit pension liability discovered during an acquisition, the appropriate action involves adjusting the pension liability upward to reflect its correct value while also considering the impact on goodwill.

In this case, Be-Dee Corp should increase the pension liability by the amount it is understated, which in this context is indicated to be $10 million. As a consequence of this adjustment, the goodwill associated with the acquisition is reduced. This is because goodwill is calculated as the excess of the purchase price over the fair value of identifiable net assets, and if a liability is found to be understated, it effectively reduces the net assets of the acquired entity.

Thus, by increasing the pension liability and adjusting the goodwill downwards, Be-Dee Corp ensures that its financial statements accurately reflect the true obligations and values associated with the acquisition. This approach supports transparency in financial reporting and aligns with the principles of accounting standards which aim to present a true and fair view of a company's financial position.