Chapter 9, Problem 9.16Q

To determine

Introduction: Multilevel ownership and control are where a corporate has multiple corporate levels using which they carry out diversified operations, i.e. a company may have a number of subsidiaries one of which is a retailer. When consolidated statements are prepared, for companies where parents have indirect investment along with direct ownership, the consolidation process will be complex because of additional ownership levels. All the intercompany transactions must be eliminated, at each level of ownership.

To explain: The reason why it is generally best to prepare consolidated financial statements by completing the consolidation entries for companies furthest from parent company ownership first and completing consolidation entries for those owned directly by parent when multilevel affiliations exist.