What is the objective of eliminating retained earnings and common stock of a subsidiary during consolidation?

The objective of eliminating retained earnings and common stock of a subsidiary during consolidation is primarily to avoid double counting. When a parent company consolidates its financial statements with those of its subsidiary, it must eliminate any intra-group transactions and balances to present a true and fair view of the financial position of the consolidated entity. The retained earnings and common stock from the subsidiary are eliminated because these amounts have already been accounted for in the parent's equity during the acquisition process.

By eliminating these amounts, the consolidation process ensures that only the parent company's equity is reflected in the consolidated financial statements, preventing any inflation of equity figures that would occur if both the parent's and subsidiary's retained earnings were included. This adjustment allows for a clear representation of the total equity attributable to the parent company's shareholders, providing a more accurate financial picture.