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.

Employee salaries T-200,000 J-200,000
Bribes to police T-25,000 J-25,000
Rent and utilities T-50,000 J-50,000
Cost of goods sold T-0 J-125,000
Which of the following statements is correct?
a) Terry's business has a higher net income than Jim's business.
b) Jim's business has a higher net income than Terry's business.
c) Both businesses have the same net income.
d) It is not possible to determine the net income without more information.

Answer 1

Upon calculating both Terry's and Jim's net incomes by deducting their respective business expenses from their gross revenues, it is determined that Terry's business has a higher net income than Jim's business.

The final answer is: a) Terry's business has a higher net income than Jim's business.

Step-by-step explanation:

The question requires calculating the net income for both Terry's gambling business and Jim's drug running business. To calculate the net income, we must subtract the total expenses from the gross revenues.

For Terry's business: Gross Revenues ($500,000) - Employee Salaries ($200,000) - Bribes to Police ($25,000) - Rent and Utilities ($50,000) = Net Income of $225,000.

For Jim's business: Gross Revenues ($500,000) - Employee Salaries ($200,000) - Bribes to Police ($25,000) - Rent and Utilities ($50,000) - Cost of Goods Sold ($125,000) = Net Income of $100,000.

Therefore, the correct option is: a) Terry's business has a higher net income than Jim's business.