Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. $$\begin{array} { l r r }
& \text { Terry } & \underline { \text { Jim } } \
\text { Employee salaries } & \$ 200,000 & \$ 200,000 \
\text { Bribes to police } & 25,000 & 25,000 \
\text { Rent and utilities } & 50,000 & 50,000 \
\text { Cost of goods sold } & - 0 - & 125,000
\end{array}$$ Which of the following statements is correct?
A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
B)Terry should report profit from his business of $250,000.
C)Jim should report profit from his business of $500,000.
D)Jim should report profit from his business of $250,000.
E)None of the above.

Question

Terry and Jim are both involved in operating illegal businesses.Terry operates a gambling business and Jim operates a drug running business.Both businesses have gross revenues of $500,000.The businesses incur the following expenses. $$\begin{array} { l r r } 
& \text { Terry } & \underline { \text { Jim } } \
\text { Employee salaries } & \$ 200,000 & \$ 200,000 \
\text { Bribes to police } & 25,000 & 25,000 \
\text { Rent and utilities } & 50,000 & 50,000 \
\text { Cost of goods sold } & - 0 - & 125,000
\end{array}$$ Which of the following statements is correct?
A)Neither Terry nor Jim can deduct any of the above items in calculating the business profit.
B)Terry should report profit from his business of $250,000.
C)Jim should report profit from his business of $500,000.
D)Jim should report profit from his business of $250,000.
E)None of the above.

Quizplus · Accepted Answer

Terry can deduct employee salaries and rent and utilities, but not bribes, resulting in a profit of $250,000. Jim can deduct the cost of goods sold, employee salaries, and rent and utilities, but not bribes, resulting in a profit of $100,000, not $500,000 or $250,000.

Terry and Jim Are Both Involved in Operating Illegal Businesses