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

Answer 1

Answer: $667,500 gain recognized and a basis in Plum stock of $263000

Step-by-step explanation:

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 = $1598000

Cash Received = $667500

The 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