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 $500,000 plus $500,000 in cash. Simone's tax basis in the Purple stock was $200,000. What amount of gain does Simone recognize in the exchange and what is her basis in the Plum stock she receives?

Multiple Choice

• $500,000 gain recognized and a basis in Plum stock of $200,000.
• $800,000 gain recognized and a basis in Plum stock of $500,000.
• $500,000 gain recognized and a basis in Plum stock of $500,000.
• $800,000 gain recognized and a basis in Plum stock of $1,000,000.