Question 1

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 dis?hon?ors 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 the party most likely liable to Mira in a civil suit because he wrote the check, and it was his responsibility to ensure that there were enough funds in the account to cover it. Local Bank may be subject to administrative fines or penalties for the dishonored check, but they are not liable to Mira. Criminal prosecution is not an option in this scenario as it was not mentioned that Kip committed a criminal offense.

Question 2

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

Presenting a check without sufficient funds is considered as fraud, as it is an intentional act of deception in order to obtain something of value (in this case, cash) from the recipient.

Question 3

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 4

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is
A) the certifier.
B) the drawee.
C) the drawer.
D) the payee.

Accepted Answer

Rikki is the person who signed the check and issued it, so she is the drawer. Scholar University is the party who will receive the payment, so they are the payee. The drawee is the bank where Rikki's account is held, and they will be responsible for guaranteeing the funds to the payee. The certifier is a separate party who certifies that the funds are available in the account, which is not applicable in this scenario.

Question 5

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

Accepted Answer

An oral stop payment order is valid for 14 days.

Question 6

Fact Pattern 27-1A 
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 27-1A. 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. Once Echo issued a stop-payment order, Capital Bank had a duty to either refuse to pay the check or inform Fix-It of the stop-payment order. By paying the check anyway, Capital Bank breached its duty and is liable for Echo's loss.

Question 7

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 four-party instrument.
C) a three-party instrument.
D) a two-party instrument.

Accepted Answer

This check involves three parties: 
1) Brendan - the drawer of the check 
2) City College Bookstore - the payee of the check 
3) Eagle Bank - the bank that processes the check and handles the transfer of funds from Delta Bank to the City College Bookstore's account.

Therefore, this check is a three-party instrument.

Question 8

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment. This instrument is the most common type of negotiable instrument, which is
A) a certificate of deposit.
B) a check.
C) a note.
D) a trade acceptance.

Accepted Answer

A check is a written order to a bank to pay a specific amount of money to a specific person or entity. In this scenario, Scott is presenting a check to the bank for payment, which is the most common type of negotiable instrument. The other options, while also forms of negotiable instruments, are not as common as checks.

Question 9

Earl issues a check drawn on First National Bank to Good Office Supply to pay for six filing cabinets. Later, Earl discovers defects in the goods and orders First National to stop payment on the check. Earl does not renew the order, and the bank clears the check eight months later. The bank
A) must recredit Earl's account and substitute acceptable goods.
B) must recredit Earl's account or substitute acceptable goods.
C) must substitute acceptable goods but not recredit Earl's account.
D) need not recredit Earl's account or substitute acceptable goods.

Accepted Answer

The bank is not responsible for the defect in the goods that Earl received from Good Office Supply. Earl's decision to stop payment on the check does not relieve him of the obligation to pay for the goods that he received. The bank cleared the check eight months later, which means that it processed the payment as it was instructed to do so by Earl. Therefore, the bank does not need to recredit Earl's account or substitute acceptable goods.

Question 10

Pat, the manager of Quik Mart, deposits the store's receipts in its account at Regional Bank. As to the receipts, the relation?ship 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

Quik Mart is depositing its receipts in the bank's account, which means the bank becomes the creditor and Quik Mart becomes the debtor. Therefore, the relationship between Quik Mart and the bank is that of a creditor and debtor.

Question 11

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 ac?count. 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 bank is liable to Dan only because the bank has breached its contract with Dan by dishonoring the check even though Dan has sufficient funds in his account.

Question 12

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 13

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

When Little Bank agrees to indicate on the face of the check that it will accept it when Key presents it for payment, it becomes a certified check. A cashier's check is issued by a bank, not a customer, and is drawn on the bank's account. A trade acceptance is used in commercial transactions between buyers and sellers. A traveler's check is a specialized form of a check used for travel purposes.

Question 14

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 15

Ian buys a cell phone in Jiffy Mart, using the means that accounts for more retail payments than any other. This means of payment is
A) a commercial check.
B) a debit card.
C) a personal check.
D) a trade acceptance.

Accepted Answer

According to the text, the means of payment that accounts for more retail payments than any other is a debit card. Therefore, Ian most likely used a debit card to buy the cell phone at Jiffy Mart.

Question 16

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

In this scenario, Liu authorized the payment to Marv by signing the check. As long as Marv did not have any reason to doubt the validity of Liu's signature, they have a legal right to the funds. Therefore, Marv is not liable for the costs to Liu. National Bank, on the other hand, violated Liu's order to not pay the check and is liable for any resulting damages. The subsequent checks bouncing is a direct result of National's mistake, so they are responsible for the costs to Liu.

Question 17

Kris presents an instrument that states "pay to the order of Liv" to Metro Bank for payment. This is a special type of draft drawn on a bank, ordering the bank to pay a fixed amount of money on demand. This is
A) a certificate of deposit.
B) a check.
C) a debit card transaction receipt.
D) a trade acceptance.

Accepted Answer

The instrument presented by Kris that orders Metro Bank to pay Liv is a check. A certificate of deposit and a trade acceptance are different types of financial instruments, while a debit card transaction receipt is simply a record of a transaction and does not involve a bank's payment order.

Question 18

Fact Pattern 27-1A 
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 27-1A. 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 19

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

Accepted Answer

When a bank agrees to accept a check by setting aside sufficient funds to cover the amount, it is considered certified. This means that the bank guarantees the payment of the check and the funds are set aside so that they cannot be used for any other purpose. Certified checks are often used in situations where the payee wants assurance that the funds will be available when the check is presented for payment.

Question 20

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

Thelma's check amount exceeds the balance she had in her account, which is called an overdraft. The bank will pay the amount of the check but may charge Thelma an overdraft fee.

Quiz 27: Checks, the Banking System, and E-Money

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 dis?hon?ors it. The party most likely liable to Mira 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

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

Rikki signs a check "pay to the order of Scholar University" drawn on Rikki's account in State Bank to pay her tuition. Rikki is

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

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

Scott presents an instrument that states "pay to the order of Scott" to Town Bank for payment. This instrument is the most common type of negotiable instrument, which is

Earl issues a check drawn on First National Bank to Good Office Supply to pay for six filing cabinets. Later, Earl discovers defects in the goods and orders First National to stop payment on the check. Earl does not renew the order, and the bank clears the check eight months later. The bank

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

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 ac?count. The bank is

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

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

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

Ian buys a cell phone in Jiffy Mart, using the means that accounts for more retail payments than any other. This means of payment 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

Kris presents an instrument that states "pay to the order of Liv" to Metro Bank for payment. This is a special type of draft drawn on a bank, ordering the bank to pay a fixed amount of money on demand. This is

Fact Pattern 27-1A 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 27-1A. Capital Bank

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

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