Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $667,500 plus $667,500 in cash. Simone's tax basis in the Purple stock was $263,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives

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Question:

Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger. In exchange, she received stock in Plum with a fair market value of $667,500 plus $667,500 in cash. Simone's tax basis in the Purple stock was $263,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives

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Answer: $667,500 gain recognized and a basis in Plum stock of $263000Explanation:The amount of gain that Simone recognize in the exchange and her basis in the Plum stock she receives will be:Gain realized = $667500 + $667500 - $263000 = $1598000Cash Received = $667500The Gain recognized will be the lesser amount between the gain realized and cash received which will be $667500.Therefore, the answer is $667,500 gain recognized and a basis in Plum stock of $263000

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