Question 1

First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount.This check is considered
A) cashed.
B) certified.
C) deposited.
D) provisionally credited.

Accepted Answer

By setting aside sufficient funds to cover the amount, First Community Bank is certifying that the check will be paid, making it a certified check.

Question 2

Fact Pattern 19-1 (Questions 15 and 16 apply)
Echo takes her car to Fix-It, Inc., which repairs the car and bills Echo for $500. Echo writes out a check drawn on Capital Bank, but later, believing that Fix-It did not repair the car properly, issues a stop-payment order.
-Refer to Fact Pattern 19-1.Capital Bank
A) is liable to Fix-It for the amount of the check.
B) must stop payment if Capital has a reasonable time to act.
C) need not stop payment unless Echo had a valid reason to act.
D) need not follow Echo's order unless the check was certified.

Accepted Answer

The answer of Fact Pattern 19-1 (Questions 15 and 16...

Question 3

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check
A) the Federal Reserve will reimburse all parties for their costs.
B) the loss will be apportioned among all of Verity's customers.
C) Uma will be liable for the amount.
D) Verity will have to recredit Uma's account.

Accepted Answer

The answer of Trudy forges Uma's signature on a check...

Question 4

Steve steals one of Tricia's checks and forges her signature.Tricia's bank,Unity Bank,pays the check.Tricia can recover from
A) Steve, but not Unity Bank.
B) Unity Bank, which cannot recover from Steve.
C) Unity Bank, which can recover from Steve.
D) no one.

Accepted Answer

Unity Bank can recover from Steve because he committed a crime by forging Tricia's signature and stealing her check. However, Tricia cannot recover from Unity Bank because they acted in good faith by accepting what appeared to be a legitimate check with a valid signature.

Question 5

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is
A) a cashier's check.
B) a certified check.
C) a trade acceptance.
D) a traveler's check.

Accepted Answer

The answer of Elmo pays First National Bank $1,000 plus...

Question 6

John writes a check to Kay as payment for a DVD player but soon discovers the player is broken.He goes to the drawee bank and orally authorizes Larry,a bank officer,to stop payment on the check.This order is valid for
A) fourteen days.
B) fourteen months.
C) thirty days.
D) six months.

Accepted Answer

The answer of John writes a check to Kay as...

Question 7

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is
A) effective if an innocent third party accepts the check.
B) effective to the degree that it matches Caleb's genuine signature.
C) effective to the extent that Downtown Bank debits Caleb's account.
D) not effective.

Accepted Answer

Forgery is not an effective means of altering legal documents. Therefore, Brandy's forging of Caleb's signature is not effective, and the check she wrote is not valid.

Question 8

Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash,Inc.,for payment.If the check is not backed by sufficient funds,Dora may be prosecuted for
A) forgery.
B) fraud.
C) negligence.
D) robbery.

Accepted Answer

Writing a check that is not backed by sufficient funds is considered check fraud and can result in prosecution.

Question 9

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank.Greta forges Eppie's indorsement.First Federal pays the check.Most likely
A) Dru will be liable for the amount.
B) Eppie will have to pay Dru for the amount.
C) First Federal will have to recredit Dru's account.
D) the Federal Reserve will reimburse all parties for their costs.

Accepted Answer

The answer of Dru signs a check "pay to the...

Question 10

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.Jen asks Little Bank to indicate on the face of the check that it will accept it when Key presents it for payment.If the bank agrees,this will be
A) a cashier's check.
B) a certified check.
C) a trade acceptance.
D) a traveler's check.

Accepted Answer

This will be a certified check because the bank is agreeing to guarantee the funds to Key when the check is presented for payment. A cashier's check would be when the bank draws the check on their own account rather than the customer's account. A trade acceptance is a type of commercial paper used in business transactions. A traveler's check is a specialized form of currency used for travel.

Question 11

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank.Thelma has $400 in her account but the amount of the check is $500,which the bank pays.This is
A) a dishonored check.
B) an overdraft.
C) a postdated check.
D) a stale check.

Accepted Answer

This is an overdraft because Thelma does not have sufficient funds in her account to cover the amount of the check she wrote. The bank paid the check anyway, resulting in Thelma owing them the $100 difference.

Question 12

Elmer can write checks on his account at Finance Bank.Gina steals the checks,forges Elmer's signature,and cashes the checks at Finance. The bank is excused from any liability if,after receipt of the first forged check,Elmer fails to report the forgeries within
A) five business days.
B) fourteen consecutive days.
C) one year.
D) three years.

Accepted Answer

The answer of Elmer can write checks on his account...

Question 13

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is
A) a dishonored check.
B) an overdraft.
C) a postdated check.
D) a stale check.

Accepted Answer

The check was dated May 1 and presented for payment on December 15, which is more than six months after the date on the check. Therefore, it is a stale check.

Question 14

Pat,the manager of Quik Mart,deposits the store's receipts in its account at Regional Bank.As to the receipts,the relationship between Quik Mart and the bank is
A) attorney and client.
B) creditor and debtor.
C) guardian and ward.
D) trustee and beneficiary.

Accepted Answer

The relationship is one of creditor and debtor, as Quik Mart is depositing its receipts in the bank's account, creating a debtor-creditor relationship where the bank owes Quik Mart the funds deposited.

Question 15

Clyde issues a check payable to Discount Mart.Elle,Discount's cashier,forges the store's indorsement and deposits the check in her bank account.Clyde's bank,First State Bank,pays the check.Clyde can recover from
A) Elle, but not First State Bank.
B) First State Bank, which cannot recover from Elle.
C) First State Bank, which can recover from Elle.
D) no one.

Accepted Answer

When Elle forged the indorsement, she committed a fraudulent act and is liable for the damages caused. However, since Clyde's bank, First State Bank, paid the check in good faith and without any reason to suspect fraud, they are protected under the Uniform Commercial Code (UCC) and are not liable. However, First State Bank can still recover the money from Elle, who committed the fraudulent act. Therefore, Clyde can recover from both Elle and possibly First State Bank through their right to subrogation, but only if First State Bank is able to recover the money from Elle.

Question 16

Kip writes a check for $1,000 drawn on Local Bank and presents it to Mira.Mira presents the check for payment to Local Bank,which dishonors it.The party most likely liable to Mira is
A) Kip in a civil suit.
B) Kip in a criminal prosecution.
C) Local Bank in an administrative proceeding.
D) neither Kip nor Local Bank.

Accepted Answer

Kip is liable to Mira for the amount of the check because he wrote the check and it was not honored by the bank. Mira can pursue legal action against Kip to recover the funds. Local Bank may also be liable to Kip for wrongfully dishonoring the check, but that does not affect Kip's liability to Mira. A is the best choice because it is the only option that correctly identifies Kip as the party most likely liable to Mira.

Question 17

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on
A) Simon.
B) Trudy.
C) United Bank.
D) First Federal Bank.

Accepted Answer

The answer of Simon signs a check "pay to the...

Question 18

Fact Pattern 19-1 (Questions 15 and 16 apply)
Echo takes her car to Fix-It, Inc., which repairs the car and bills Echo for $500. Echo writes out a check drawn on Capital Bank, but later, believing that Fix-It did not repair the car properly, issues a stop-payment order.
-Refer to Fact Pattern 19-1.Capital Bank pays the check.Capital
A) can sue Echo for a wrongful stop-payment order.
B) can sue Fix-It for breach of contract.
C) can sue no one because it paid a check that was not properly payable.
D) is liable for Echo's loss due to the wrongful payment.

Accepted Answer

Capital Bank is liable for Echo's loss due to the wrongful payment as the stop-payment order was issued due to a dispute over the quality of the repair work done by Fix-It, and not due to any error in the payment itself.

Question 19

Dan writes a check to Emma on his account at First State Bank.The bank dishonors the check even though Dan has sufficient funds in his account.The bank is
A) liable to Dan only.
B) liable to Dan and Emma.
C) liable to Emma only.
D) not liable to Dan or Emma.

Accepted Answer

The answer of Dan writes a check to Emma on...

Question 20

Liu signs a check "pay to the order of Marv" drawn on Liu's account in National Bank.Liu later orders National not to pay the check,but the bank pays it over Liu's order.Subsequent checks written on Liu's account "bounce." Most likely liable for the costs to Liu is
A) any party to whom a subsequent check was written.
B) Liu.
C) Marv.
D) National.

Accepted Answer

Marv received the benefit of the check and is therefore responsible for any costs incurred by Liu as a result of the bank paying the check. National may also be liable for improperly cashing the check against Liu's order, but that does not absolve Marv from responsibility. The subsequent parties who received bounced checks have no connection to this particular transaction and are not liable for the costs incurred by Liu.

Quiz 19: Checks and Banking in the Digital Age

First Community Bank agrees to accept a check by setting aside sufficient funds to cover the amount.This check is considered

Trudy forges Uma's signature on a check "payable to the order of Trudy" drawn on Uma's account in Verity Bank.Most likely,if the bank pays the check

Steve steals one of Tricia's checks and forges her signature.Tricia's bank,Unity Bank,pays the check.Tricia can recover from

Elmo pays First National Bank $1,000 plus a service fee to draw a check on itself made payable to Go Delivery Service.This is

John writes a check to Kay as payment for a DVD player but soon discovers the player is broken.He goes to the drawee bank and orally authorizes Larry,a bank officer,to stop payment on the check.This order is valid for

Brandy forges Caleb's signature on a check "payable to the order of Brandy" drawn on Caleb's account in Downtown Bank.Caleb's forged signature is

Dora writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash,Inc.,for payment.If the check is not backed by sufficient funds,Dora may be prosecuted for

Dru signs a check "pay to the order of Eppie" drawn on Dru's account in First Federal Bank.Greta forges Eppie's indorsement.First Federal pays the check.Most likely

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car.Jen asks Little Bank to indicate on the face of the check that it will accept it when Key presents it for payment.If the bank agrees,this will be

Thelma signs a check "pay to the order of Uri" drawn on Thelma's account in Verity Bank.Thelma has $400 in her account but the amount of the check is $500,which the bank pays.This is

Elmer can write checks on his account at Finance Bank.Gina steals the checks,forges Elmer's signature,and cashes the checks at Finance. The bank is excused from any liability if,after receipt of the first forged check,Elmer fails to report the forgeries within

Dhani signs a check "pay to the order of Etan" drawn on Dhani's account in First State Bank and dates the check "May 1." Etan presents the check to the bank for payment on December 15.This is

Pat,the manager of Quik Mart,deposits the store's receipts in its account at Regional Bank.As to the receipts,the relationship between Quik Mart and the bank is

Clyde issues a check payable to Discount Mart.Elle,Discount's cashier,forges the store's indorsement and deposits the check in her bank account.Clyde's bank,First State Bank,pays the check.Clyde can recover from

Kip writes a check for $1,000 drawn on Local Bank and presents it to Mira.Mira presents the check for payment to Local Bank,which dishonors it.The party most likely liable to Mira is

Simon signs a check "pay to the order of Tilly" drawn on Simon's account in United Bank.Vela forges Tilly's indorsement,First Federal Bank cashes the check,and Vela disappears.United pays First Federal and debits Simon's account.Most likely,the ultimate loss will fall on

Dan writes a check to Emma on his account at First State Bank.The bank dishonors the check even though Dan has sufficient funds in his account.The bank is

Liu signs a check "pay to the order of Marv" drawn on Liu's account in National Bank.Liu later orders National not to pay the check,but the bank pays it over Liu's order.Subsequent checks written on Liu's account "bounce." Most likely liable for the costs to Liu is