Isobutyraldehyde, (CH3)2CH-CHO, has exactly one acidic α-hydrogen. In the presence of a mild base (K2CO3), it forms an enolate which selectively attacks the more reactive, non-enolizable formaldehyde (HCHO).

The aldehyde group of Compound 'A' is targeted by nucleophilic cyanide ions (CN¯) from KCN, producing a cyanohydrin intermediate containing both a nitrile moiety and hydroxyl components.

During aqueous acid treatment, two shifts happen in rapid succession:

• The nitrile group (-CN) is completely hydrolyzed into a carboxylic acid group (-COOH).
• Because a carboxylic acid and a hydroxyl group (-OH) exist in a 1,4-relationship within the same molecule, they undergo spontaneous intramolecular nucleophilic acyl substitution (esterification), releasing an H2O molecule to form a stable 5-membered cyclic ester ring (a γ-lactone).