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Simone transferred 100 percent of her stock in Purple Company to Plum Corporation in a Type A merger

Accounting

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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 $670,000 plus $670,000 in cash. Simone's tax basis in the Purple stock was $220,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Multiple Choice

• $1,120,000 gain recognized and a basis in Plum stock of $1,340,000.

• $1,120,000 gain recognized and a basis in Plum stock of $670,000.

• $670,000 gain recognized and a basis in Plum stock of $670,000.

• $670,000 gain recognized and a basis in Plum stock of $220,000.