PQR Company has the ownership structure shown above. If H_1 lends money to P_2, the intercompany elimination of H_1's receivable occurs as data from Hickory consolidates into PQR. What is this principle called?

The principle being referenced in the context of intercompany eliminations during consolidation is known as the "First common parent" principle. This principle arises in consolidation when a parent company, such as H_1, has multiple subsidiaries—in this case, P_2—and it lends money. When consolidating financial statements, any intercompany transactions, including receivables and payables between the parent and the subsidiaries, must be eliminated to prevent the inflation of asset or liability values.

When H_1 lends money to P_2, H_1's receivable from P_2 is eliminated in the consolidation process to reflect only the financial position of the entire economic entity. This ensures that only transactions with external parties are represented in the consolidated financial statements. Thus, the concept of identifying the first common parent—H_1 in this scenario—highlights the entity that oversees the entire corporate structure and the eliminations necessary to create a true reflection of the group’s financial status.

Understanding this principle is crucial for correctly applying the consolidation process and ensuring accurate financial reporting, particularly in a corporate structure with multiple layers of subsidiaries.