Terry and Jim Are Both Involved in Operating Illegal Businesses

question 2

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. $$\begin{array} { l r r } & \underline {\text { Terry} } & \underline { \text { Jim } } \\\text { Employee salaries } & \$ 200,000 & \$ 200,000 \\\text { Bribes to police } & 25,000 & 25,000 \\\text { Rent and utilities } & 50,000 & 50,000 \\\text { Cost of goods sold } & - 0 - & 125,000\end{array}$$ Which of the following statements is correct?

• A)Neither Terry nor Jim can deduct any of these 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 these.

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