The founder of Company A remained the only shareholder of Company A at all times. Company X purchased this privately held company and purchased its outstanding stock. The founder of Company A agreed to advise the company for 12 months following the purchase. Company X paid the founder a sum of $100,000. Company A reported the $100,000 as Investment in Subsidiary Stock.

Was this the correct way to report the purchase? If not, did Company X gain a financial accounting reporting advantage by recording the acquisition in the manner that it did? Please explain.