Question 1

Daria writes a check for $100 drawn on Village Bank and presents it to Fast Cash, Inc., for payment. If the check is not backed by sufficient funds, Daria may be prosecuted for
A) forgery.
B) fraud.
C) negligence.
D) nothing.

Accepted Answer

Daria may be prosecuted for fraud if the check is not backed by sufficient funds, as she is intentionally deceiving Fast Cash, Inc. by presenting a check that she knows cannot be fulfilled. Forgery and negligence are not applicable in this situation.

Question 2

Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller. Later, Shakira discovers a defect in the device and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank
A) must recredit Shakira's account.
B) must obtain funds from Ranch & Farm to cover the check.
C) must substitute acceptable goods.
D) need not recredit Shakira's account.

Accepted Answer

Once a check has been cleared, the bank is no longer responsible for stopping payment or recrediting the account. Shakira's failure to renew the stop payment order is also her responsibility, and the bank is not obligated to take any further action. Therefore, the bank does not need to recredit Shakira's account.

Question 3

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 cashier's check.
B) an overdraft.
C) a certified check.
D) a stale check.

Accepted Answer

The check is stale because it was presented for payment more than six months after it was dated.

Question 4

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 5

Martha has a checking account with Homeplace Bank. Martha signs a check "payable to Phillipa" drawn on Martha's account. Homeplace Bank is
A) the payer.
B) the drawee.
C) the drawer.
D) the payee.

Accepted Answer

The answer of Martha has a checking account with Homeplace...

Question 6

Fact Pattern 14-1 (Questions 19 and 20 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 14-1. 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

Capital Bank must stop payment if Echo issues a stop-payment order and the bank has a reasonable time to act on it.

Question 7

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing. Which of the following parties is responsible for paying the check?
A) Only Ellen
B) Both Ellen and State Bank
C) Only State Bank
D) None of the parties

Accepted Answer

The answer of Ellen pays State Bank $500 plus a...

Question 8

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is
A) a one-party instrument.
B) a nonnegotiable instrument.
C) a special type of draft.
D) not a substitute for cash.

Accepted Answer

The check is a special type of draft because it is an order to pay from one account to another. It is not a one-party instrument because it involves both Brendan and the City College Bookstore, and it is not nonnegotiable because it can be deposited into the bookstore's account. While it is not a substitute for cash in the sense that it cannot be used directly to purchase goods, it can be deposited and then used to pay off debts or make purchases through the bank account.

Question 9

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1. Mary dies on May 3. Bill presents the check to County Bank on May 5. County Bank
A) may not pay the check.
B) may pay the check.
C) must consult with Mary's heirs before paying the check.
D) must read Mary's will before paying the check.

Accepted Answer

The answer of Mary writes a check drawn on County...

Question 10

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) an overdraft.
C) a stale check.
D) a stop-payment order.

Accepted Answer

This is a cashier's check because Elmo is giving the bank the money upfront and the bank is guaranteeing the funds to Go Delivery Service.

Question 11

Jon writes a check to LocoMotion, Inc., as payment for a golf cart but soon discov?ers the cart is broken. He goes to Fairway Bank, the drawee, and orally author?izes Lolly, a bank officer, to stop payment on the check. This order is valid for
A) fourteen days.
B) fourteen months.
C) fourteen attempts to cash it.
D) fourteen subsequent "on-us" items.

Accepted Answer

Generally, a stop payment order is valid for six months, but some banks may allow it to be valid for up to a year. However, in this case, since Jon orally authorized Lolly to stop the payment, it is valid for only 14 days per the Uniform Commercial Code (UCC). Therefore, the correct choice is A.

Question 12

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 invalidates a check, and Caleb's forged signature does not authorize the payment. Therefore, it is not effective.

Question 13

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car. If there are insufficient funds in Jen's account to cover the amount of the check, but the bank pays it, this creates
A) a cashier's check.
B) an overdraft.
C) a stale check.
D) a stop-payment order.

Accepted Answer

If Jen's account does not have sufficient funds to cover the check, but the bank pays it anyway, Jen's account will have a negative balance, which is known as an overdraft. This will result in additional fees and potential penalties for Jen from the bank. It is important to ensure that there are sufficient funds in an account before writing a check to avoid overdrafts.

Question 14

Elton presents an uncertified check for payment more than six months after its date. The check was drawn by Dakota on her account in First Community Bank. The usual banking practice in such a case is to
A) cash the check.
B) consult the customer.
C) refuse to cash the check.
D) ask the payee what he or she would prefer.

Accepted Answer

The answer of Elton presents an uncertified check for payment...

Question 15

Luc writes a check for $1,000 drawn on Ridgetop Bank and presents it to Bianca. Bianca presents the check for payment to Ridgetop Bank, which dis?hon?ors it for insufficient funds. The party most likely liable to Bianca is
A) Luc in a civil suit.
B) Luc in a criminal prosecution.
C) Ridgetop Bank in an administrative proceeding.
D) neither Luc nor Ridgetop Bank.

Accepted Answer

Luc is responsible for ensuring that he has sufficient funds in his account to cover the amount of the check he has written. By writing a check for $1,000 that he did not have sufficient funds to cover, he has committed a breach of contract with Bianca. Therefore, Bianca can file a civil suit against Luc to recover the amount of the check. Neither Ridgetop Bank nor the criminal justice system are responsible for this dispute.

Question 16

Little Local Bank wrongfully fails to honor a check signed by its customer Andrea. Little Local Bank is
A) not liable to Andrea for damages resulting from its refusal to pay.
B) only liable to Andrea for damages resulting from its refusal to pay if Andrea takes action against the bank within one business day of the failure to honor the check.
C) only liable to Andrea for one half of the damages resulting from its refusal to pay.
D) liable to Andrea for damages resulting from its refusal to pay.

Accepted Answer

Little Local Bank is liable to Andrea for damages resulting from its refusal to pay as the bank wrongfully failed to honor a check signed by its customer.

Question 17

Fact Pattern 14-1 (Questions 19 and 20 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 14-1. 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, because there was a valid stop-payment order issued by Echo.

Question 18

Jacob writes Phillip an uncertified check for $500 on January 1. Seven months later, Phillip presents the check at the bank. The bank pays the check in good faith without consulting Jacob. The bank
A) does not have the right to charge Jacob's account for $500.
B) only has the right to charge Jacob's account for $250.
C) has the right to charge Jacob's account for $500.
D) can be held liable for breach of contract.

Accepted Answer

The bank has the right to charge Jacob's account for $500. Even though the check was uncertified, Jacob still authorized the payment by writing and giving the check to Phillip. The bank paid in good faith without any indication of fraud or irregularity, so they are not liable. According to the Uniform Commercial Code (UCC), Section 3-418, the bank can charge the account of the person who wrote the check (also known as the drawer) as long as it was paid in good faith.

Question 19

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 20

Julia opens a checking account with Washington Bank and deposits funds into the account. Julia and Washington Bank
A) do not have a contractual relationship.
B) have a creditor-debtor relationship in which Julia is the creditor and Washington Bank is the debtor.
C) have a creditor-debtor relationship in which Washington Bank is the creditor and Julia bank is the debtor.
D) do not have a creditor-debtor relationship.

Accepted Answer

When Julia opens a checking account with Washington Bank and deposits funds, they enter into a creditor-debtor relationship. Washington Bank becomes the debtor while Julia becomes the creditor as the bank owes her the deposited funds. This is because the bank owes Julia the money in her account, and Julia can withdraw it at any time.

Quiz 14: Checks and Banking in the Digital Age

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

Shakira issues a check drawn on Thrifty Bank to Ranch & Farm Supply to pay for a rototiller. Later, Shakira discovers a defect in the device and orders Thrifty to stop payment on the check. Shakira does not renew the order, and the bank clears the check eight months later. The bank

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

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

Martha has a checking account with Homeplace Bank. Martha signs a check "payable to Phillipa" drawn on Martha's account. Homeplace Bank is

Ellen pays State Bank $500 plus a service fee to draw a check on itself payable to Paul's Plumbing. Which of the following parties is responsible for paying the check?

Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is

Mary writes a check drawn on County Bank for $400 "payable to Bill" on May 1. Mary dies on May 3. Bill presents the check to County Bank on May 5. County Bank

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

Jon writes a check to LocoMotion, Inc., as payment for a golf cart but soon discov?ers the cart is broken. He goes to Fairway Bank, the drawee, and orally author?izes Lolly, 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

Jen signs a check "pay to the order of Key" drawn on Jen's account in Little Bank to buy Key's car. If there are insufficient funds in Jen's account to cover the amount of the check, but the bank pays it, this creates

Elton presents an uncertified check for payment more than six months after its date. The check was drawn by Dakota on her account in First Community Bank. The usual banking practice in such a case is to

Luc writes a check for $1,000 drawn on Ridgetop Bank and presents it to Bianca. Bianca presents the check for payment to Ridgetop Bank, which dis?hon?ors it for insufficient funds. The party most likely liable to Bianca is

Little Local Bank wrongfully fails to honor a check signed by its customer Andrea. Little Local Bank is

Jacob writes Phillip an uncertified check for $500 on January 1. Seven months later, Phillip presents the check at the bank. The bank pays the check in good faith without consulting Jacob. The bank

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

Julia opens a checking account with Washington Bank and deposits funds into the account. Julia and Washington Bank