I'm not sure why you've limited your question to the California income tax return as, usually, you face the same issue at the federal level.
Also, these questions that don't disclose the actual companies involved are simply impossible to answer definitively as the tax consequences depend very much on the actual structure of the deal. That is, two deals that appear to be exactly the same on the surface can result in very different income tax accounting because of the "behind the scenes" deal structure.
"Then company B acquired the company A through tax free merger for cash and stock deal. "
Typically a merger or acquisition is at lease partially taxable to the shareholders who tender their stock to the extent that they receive cash in addition to stock. Names of companies involved?
