Chapter 24 The Function and Creation of Negotiable Instruments. All Answers

Chapter 24 The Function and Creation of Negotiable Instruments N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A qu ...

Chapter 24 The Function and Creation of Negotiable Instruments N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A question modified from the previous edition of the Test Bank. = A question included in the previous edition of the Test Bank. A1. A negotiable instrument can function as a substitute for cash. T PAGE: 462 TYPE: = NAT: AACSB Reflective AICPA Critical Thinking A2. On a trade acceptance, the drawer is also the drawee. F PAGE: 463 TYPE: + NAT: AACSB Analytic AICPA Legal A3. A time draft is payable at a definite future time. T PAGE: 463 TYPE: = NAT: AACSB Analytic AICPA Legal A4. A promissory note payable to “bearer” is not negotiable. F PAGE: 464 TYPE: = NAT: AACSB Analytic AICPA Legal A5. A check is a time instrument because it is payable in due time. F PAGE: 464 TYPE: N NAT: AACSB Reflective AICPA Legal A6. A certificate of deposit is a type of note. T PAGE: 466 TYPE: + NAT: AACSB Analytic AICPA Legal A7. For an instrument to be negotiable, it must be in writing. T PAGE: 466 TYPE: = NAT: AACSB Analytic AICPA Legal A8. To be negotiable, an instrument must not be on material that lends itself to permanence. F PAGE: 466 TYPE: N NAT: AACSB Reflective AICPA Legal A9. For an instrument to be negotiable, it need not be signed. F PAGE: 467 TYPE: N NAT: AACSB Analytic AICPA Legal A10. A signature can consist of a word, mark, or symbol. T PAGE: 467 TYPE: N NAT: AACSB Reflective AICPA Legal A11. For an instrument to be negotiable, it must not contain an express promise or order to pay. F PAGE: 468 TYPE: N NAT: AACSB Analytic AICPA Legal A12. To be negotiable, an instrument must have conditional promises attached to it. F PAGE: 468 TYPE: N NAT: AACSB Analytic AICPA Legal A13. A statement in an instrument that payment can be made only out of a particular fund or source renders it nonnegotiable. F PAGE: 468 TYPE: N NAT: AACSB Reflective AICPA Legal A14. A mere reference in an instrument to another writing makes the promise or order conditional. F PAGE: 468 TYPE: N NAT: AACSB Reflective AICPA Legal A15. To be negotiable, an order to pay must be addressed to only one person. F PAGE: 468 TYPE: N NAT: AACSB Reflective AICPA Legal A16. An instrument that promises to pay “in gold” can be negotiable. F PAGE: 469 TYPE: = NAT: AACSB Reflective AICPA Legal A17. An instrument is not negotiable if it is not payable at a definite time. F PAGE: 469 TYPE: N NAT: AACSB Analytic AICPA Legal A18. Any person in possession of a negotiable instrument payable to bearer is a holder. T PAGE: 471 TYPE: = NAT: AACSB Analytic AICPA Legal A19. An instrument payable “with interest” must specify a particular rate to be negotiable. F PAGE: 475 TYPE: = NAT: AACSB Analytic AICPA Legal A20. An undated instrument is not negotiable. F PAGE: 475 TYPE: = NAT: AACSB Reflective AICPA Legal MULTIPLE CHOICE QUESTIONS Fact Pattern 24-1A (Questions A1–A2 apply) Flik draws a check payable to “DeliMart” to buy groceries. A1. Refer to Fact Pattern 24-1A. Flik’s check is most likely a. a certificate of deposit. b. an order to pay. c. a promise to pay. d. a promissory note. B PAGE: 463 TYPE: + NAT: AACSB Reflective AICPA Legal A2. Refer to Fact Pattern 24-1A. With respect to Flik’s check, DeliMart is a. the drawee. b. the drawer. c. the maker. d. the payee. D PAGE: 463 TYPE: = NAT: AACSB Reflective AICPA Legal Fact Pattern 24-2A (Questions A3–A4 apply) Commodity Sales Corporation and Resource Purchasing Company enter a contract for a sale of unprocessed silver. Commodity Sales draws a draft unconditionally ordering Resource Purchasing to pay $50,000 to Commodity Sales’s order in sixty days. Resource Purchasing signs and dates the draft. A3. Refer to Fact Pattern 24-2A. This instrument is a. a banker’s acceptance. b. a nonnegotiable instrument. c. a promissory note. d. a trade acceptance. D PAGE: 463 TYPE: = NAT: AACSB Reflective AICPA Legal A4. Refer to Fact Pattern 24-2A. On this instrument, Commodity Sales is a. the banker. b. the drawer. c. the maker. d. the trader. B PAGE: 463 TYPE: = NAT: AACSB Reflective AICPA Legal A5. To obtain office supplies for Doctors Medical Clinic, Elmo executes a draft in favor of Flynn. A draft is a. a conditional promise to pay money. b. an unconditional written order to pay money. c. a qualified promise to set aside a sum of money. d. a restricted promise to deliver goods at a future date. B PAGE: 463 TYPE: = NAT: AACSB Analytic AICPA Legal A6. Bagels n’ Coffee Café issues an instrument in favor of Eatery Supplies, Inc. For the instrument to be negotiable, it must a. be a conditional promise or order to pay. b. be payable on demand or at a specific time. c. be signed by the payee. d. recite the consideration given in exchange for it. B PAGE: 466 TYPE: N NAT: AACSB Reflective AICPA Legal A7. Rita owes $6,000 in unpaid taxes. In the sand of Seaside Beach, she exe¬cutes an instrument for that amount that otherwise meets the re¬quire¬ments for negotiability. This instrument is likely a. negotiable. b. nonnegotiable, because an instrument must be on paper. c. nonnegotiable, because sand is not sufficiently permanent. d. nonnegotiable, because the government does not appreciate it. C PAGE: 466 TYPE: = NAT: AACSB Reflective AICPA Legal A8. To finance the purchase of a car from Giant Auto Sales, Hoppy signs an instrument promising to pay to “Ideal Credit Union” $18,000 with interest in installments with the final payment due May 15, 2014. To be negotiable, this instrument must include on its face a. any conditions on the sale of the car. b. any conditions to the disbursement of the funds. c. any conditions to the repayment of the loan. d. no conditions. D PAGE: 467 TYPE: = NAT: AACSB Reflective AICPA Legal A9. To finance the purchase of a house from Tuna, Uri signs an instrument promising to pay to “Verity Mortgage Service” $160,000 with interest in installments with the final payment due July 10, 2042. To be negotiable, this instrument must include the signature of a. a non-party witness. b. Tuna or Tuna’s realtor. c. Uri. d. Verity’s chief financial officer. C PAGE: 467 TYPE: = NAT: AACSB Reflective AICPA Legal A10. Ryan signs an instrument using an “R” with a circle around it. With this mark for a signature, the instrument is a. negotiable. b. nonnegotiable, because an initial does not state the signer’s name. c. nonnegotiable, because this mark is a symbol, not a signature. d. nonnegotiable, because a simple mark implies a lack of serious intent. A PAGE: 467 TYPE: + NAT: AACSB Reflective AICPA Legal A11. Karen writes on a piece of paper, “I owe you $600,” signs it, and gives it to Lou. This instrument is a. negotiable. b. nonnegotiable, because it does not include an express promise to pay. c. nonnegotiable, because it does not recite any consideration. d. nonnegotiable, because it does not state any conditions to payment. B PAGE: 468 TYPE: = NAT: AACSB Reflective AICPA Legal A12. Jack signs an instrument that states it is being executed “as per a contract for the sale of three magic beans dated June 1.” This instru¬ment is a. negotiable. b. nonnegotiable, because banks cannot easily process commodities. c. nonnegotiable, because it includes the specific date of a contract. d. nonnegotiable, because it refers to an express contract. A PAGE: 468 TYPE: = NAT: AACSB Reflective AICPA Legal A13. Kelly signs an instrument in favor of Leo that states it is “subject to a cer¬tain agreement between Kelly and Mona.” This instru¬ment is a. negotiable. b. nonnegotiable, because it is made subject to a separate agreement. c. nonnegotiable, because it refers to a separate agreement. d. nonnegotiable, because Kelly and Mona are not the same persons. B PAGE: 468 TYPE: = NAT: AACSB Reflective AICPA Legal A14. On behalf of Digital Cable Company, Elvin signs an instrument in which he promises to deliver 1,000 feet of optic fiber cable to Financiers eBank on March 1. This instrument is a. negotiable. b. nonnegotiable, because cable is not a medium of exchange author¬ized or adopted by a government as currency. c. nonnegotiable, because it does not indicate a specific type of cable. d. nonnegotiable, because it does not recite any consideration. B PAGE: 469 TYPE: = NAT: AACSB Reflective AICPA Legal A15. Rainey signs a promissory note for $10,000 in favor of State University (SU). The note is undated but specifies that it is “payable one month after date.” This note is a. negotiable. b. nonnegotiable, because one month is not a reasonable time. c. nonnegotiable, because there is no option to pay early. d. nonnegotiable, because the maturity date cannot be deter¬mined from the face of the instrument. D PAGE: 471 TYPE: N NAT: AACSB Reflective AICPA Legal A16. Hayley signs an instrument payable to the order of InstaCredit, Inc., that allows a holder to demand payment of the entire amount due, with inter¬est, if Hayley fails to make a payment. This instrument is a. negotiable. b. nonnegotiable, because a holder can move up the payment date. c. nonnegotiable, because moving up the payment date is conditional. d. nonnegotiable, because the exact payment date cannot be deter¬mined from the face of the instrument. A PAGE: 471 TYPE: = NAT: AACSB Reflective AICPA Legal A17. Quincy draws a check payable to “Replay Stadium” to buy two season tickets to the next year’s State College football games. This instrument is a. a bearer instrument. b. an order instrument. c. valid but nonnegotiable. d. void. B PAGE: 473 TYPE: = NAT: AACSB Reflective AICPA Legal A18. Shad signs a promissory note payable to Theresa “with interest” on which he conspicuously notes that it is “nonnegotiable.” This instru¬ment is a. negotiable. b. nonnegotiable, because it includes the notation “nonnegotiable.” c. nonnegotiable, because it does not specify a rate of interest. d. nonnegotiable, because the exact amount payable cannot be deter-mined from the face of the instrument. B PAGE: 475 TYPE: N NAT: AACSB Reflective AICPA Legal A19. Locke signs a check payable to the order of Metro Bank, filling in the blanks for the amount with the figures “$100” and “One thousand and 00/100 dol-lars.” This check is payable in the amount of a. $0. b. $100. c. $1,000. d. $1,100. C PAGE: 475 TYPE: = NAT: AACSB Reflective AICPA Legal A20. On May 1, Doug signs a check that is payable to the order of Employees Credit Corporation and that is dated July 1. This check is a. negotiable. b. nonnegotiable, because it is payable to a corporation. c. nonnegotiable, because it is postdated. d. nonnegotiable, because it is signed by the drawer. A PAGE: 475 TYPE: = NAT: AACSB Reflective AICPA Legal ESSAY QUESTIONS A1. The accounting department of Delta Sales Company receives an instru¬ment that states, “March 16, 2011. Thirty days after date, I promise to pay to the order of cash, $700 (seven hundred and 00/100 dollars), in Denver, Colorado, with interest at the rate of 7% (seven percent) per year. This in¬strument is secured by a contract for the sale of a computer. Due April 15, 2011. [Signed] Edward Jones.” What type of instrument is this? Is it nego¬tiable? If not, why not? A2. On a sheet of paper, Elle writes, without her signature, “I acknowledge that I owe Frank $600, payable out of the proceeds of the sale of my car, a 1995 Honda Civic, which I promise to advertise ‘For Sale’ next week. Payment is to be made on or before six months from today.” What type of instrument is this? Is it nego¬tiable? If not, why not?