Terry and Jim Are Both Involved in Operating Illegal Businesses

question 125

Multiple Choice

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.
$\begin{array}{lrr}& \text { Terry } & \text { Jim } \\\text { Employee salaries } & \$ 200,000 & \$ 200,000 \\\text { Bribes to police } & 25,000 & 25,000 \\\text { Rent and utilities } & 50,000 & 50,000 \\\text { Cost of goods sold } & -0- & 125,000\end{array}$
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.

---

Definitions:

World Price

The international price at which goods are traded between countries, affecting domestic markets.

No-Trade Prices

Prices at which market participants are not willing to trade, indicating either a lack of demand at higher prices or a lack of supply at lower prices.

Trade Barriers

Policies or regulations imposed by governments to limit the free exchange of goods and services across countries, including tariffs and quotas.

Dumping

The practice of selling goods in a foreign market at a price below their production cost or domestic price, often to gain market share or eliminate competition.