Suppose That Tracy and Pat Start a Business

question 256

Multiple Choice

Suppose that Tracy and Pat start a business. Because of a series of bad decisions by Tracy, the company goes bankrupt, owing a total of $50,000. Tracy is penniless and Pat is a millionaire. If the company were organized as a partnership, Pat would be responsible for

• A) over $1 million of debt.
• B) $50,000 of debt.
• C) $25,000 of debt.
• D) $0 of debt.

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Definitions:

Work in Process Inventory

Goods that are in the process of being manufactured but are not yet complete.

Raw Materials Inventory

The stock of unprocessed materials held by a company, intended for use in production.

Direct Labor

Costs of wages for employees who physically produce products or serve customers directly.

Process Costing System

An accounting system used when products are identical and it's impractical to track individual costs, totaling costs for a period and spreading them evenly across all units produced.