Terry and Jim Are Both Involved in Operating Illegal Businesses

question 135

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. 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:

Financial Analysis

The evaluation of a company's financial statements to assess its performance and to make future financial decisions.

General-Purpose Financial Statements

Financial documents that are prepared to meet the needs of various external users who cannot demand custom reports.

Accounts Receivable Turnover

A financial metric that measures how many times a company collects its average accounts receivable within a specific period.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a period, indicating the efficiency of inventory management.