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 $532,500 plus $532,500 in cash. Simone's tax basis in the Purple stock was $287.000. What amount of gain does Simone recogn in the exchange and what is her basis in the Plum stock she receives? Multiple Choice $778,000 gain recognized and a basis In Plum stock of $1.065,000. O $778.000 gain recognized and a basis In Plum stock of $532,500. $532,500 gain recognized and a basis in Plum stock of $532.500. O O $532,500 galn recognized and a basis in Plum stock of $287.000.

Answer 1

Answer:

Gain realized         = Fair Market Value + Cash Received (-) Tax Basis         =   $ 532,500 + $ 532,500 (-) $ 287,000         =    $ 778,000

Gain recognized            = Gain realized (or) cash received Which ever is lower            =    $ 778,000 (or) $ 532,500 Which ever is lower            =   $ 532,500

Basis of Plum Stock = $ 287,000

Option (d) is Correct

$ 532,500 gain recognized and a basis in Plum stock of $ 287,000