Ch18 Complete Test Bank + Bank-Depositor Relationships and

Business Law with UCC Applications, 15e (Sukys)

Chapter 18 Bank-Depositor Relationships and Cyber-Banking

1) When an overdraft occurs, the bank becomes the customer's agent.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

2) If Nina deposits a check from Rico's bank into her bank that was made payable to her by Rico, any settlement given by Nina's bank is provisional.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

3) Boise Bank becomes a debtor to Juanita when she deposits money into her account at Boise Bank.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

4) Because she was traveling, Julie finally deposits her check dated May 1, 2017 on the first business day of the new year, January 2, 2018, into her account at Boise Bank. Boise Bank is obligated to pay the check.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

5) On July 15th, the day he died, Sam wrote a check to Century Link to pay for his phone and Internet. On July 20th, an announcement of Sam's death was published in the local paper. But the check, along with others, sat on Sam's desk until August 15th, when the executor mailed them. Sam's bank must pay this check.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

6) A stale check is a check that is presented for payment more than 60 days after its date.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7) The offering of a forged instrument to another person when the offeror knows it to be forged is known as uttering.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

8) Regulation CC requires banks to make all deposited funds available to depositors within twenty-four (24) hours, or the next business day.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

9) Ivan receives his June 2018 Friendly Bank statement and promptly calls the bank to report a series of forged checks shown on the statement dating back to March 2018. Friendly Bank must credit Ivan's account for the forged checks.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-02 Clarify the depositor's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

10) A written stop payment order is effective for fourteen (14) calendar days.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-03 Explain a drawer's rights in relation to a stop-payment order.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

11) Janice and her daughter have a joint checking account. The basic insurance coverage by the FDIC can protect this account only up to $250,000.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-04 Explain the extent of the insurance protection provided by the FDIC.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

12) A depositary bank is the first bank to which an item is transferred in the course of collection.

Difficulty: 2 Medium

Topic: Bank Deposits and Collections

Learning Objective: 18-05 List the different terms used to describe banks during the bank collection process.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

13) On August 1st, Jim writes a check to Angela drawn on his account at Fidelity Bank. Angela deposits the check into her Boise Bank account on August 5th. In this case Jim's bank is the payor bank and must settle its accounts by midnight on August 5th.

Difficulty: 2 Medium

Topic: Bank Deposits and Collections

Learning Objective: 18-05 List the different terms used to describe banks during the bank collection process.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

14) When a check is deposited in the payee's own account in a depository bank, any settlement given by the depository bank is provisional until the next banking day at midnight.

Difficulty: 3 Hard

Topic: Bank Deposits and Collections

Learning Objective: 18-06 Outline a check's life cycle.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

15) Under the Check 21 Act, checks may have a shorter float time and banks honor small overdrafts.

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-07 Describe the principal features of the Check 21 Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

16) Under the Check 21 Act, bank customers have an absolute right to see their original checks.

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-08 Describe the consumer protection features of the Check 21 Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

17) Under the Check 21 Act, an image replacement document is also called a substitute check.

Difficulty: 1 Easy

Topic: Cyber-Banking

Learning Objective: 18-09 Describe the process of an electronic fund transfer.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

18) Cindy's liability for the unauthorized use of her ATM card is limited to $500 if she notifies the bank after ninety (90) days of discovery.

Difficulty: 3 Hard

Topic: Cyber-Banking

Learning Objective: 18-09 Describe the process of an electronic fund transfer.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

19) A business receiving money by electronic transfer is known as the beneficiary.

Difficulty: 1 Easy

Topic: Cyber-Banking

Learning Objective: 18-10 Discuss the protection given to consumers by the Electronic Fund Transfer Act.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

20) The Electronic Fund Transfer Act applies to transactions only between banks and businesses.

Difficulty: 1 Easy

Topic: Cyber-Banking

Learning Objective: 18-10 Discuss the protection given to consumers by the Electronic Fund Transfer Act.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

21) Which of the following is true of the relationship between the drawee bank and its customer?

A) The drawee bank becomes a creditor and the customer becomes a debtor at the time of opening a checking account.

B) The drawee bank becomes an insurer and the customer the insured at the time of opening a checking account.

C) The drawee bank becomes the customer's debtor at the time of opening a checking account and agent while collecting checks.

D) The drawee bank becomes a debtor to the customer when the bank pays more than the customer has on deposit.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

22) Chuck deposits his paycheck drawn on Big Bank at Small Bank, and his account is credited with this deposit. Three days later, Chuck is notified by Small Bank that his paycheck has been dishonored by Big Bank due to insufficient funds, and the amount of the check has been deducted from Chuck's Small Bank account. Which of the following is true of this situation?

A) The settlement by Small Bank was provisional and was rightfully rescinded since the paycheck was dishonored.

B) Small Bank acted too slowly and did not comply with the prescribed schedule of Regulation CC.

C) Big Bank is the payor bank and hence, must reimburse Small Bank, the depositor bank.

D) Small Bank cannot credit Chuck's account until it is certain that Big Bank will honor the check.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

23) Which of the following is true of a bank's duty to honor checks?

A) The drawee bank is not under a duty to honor all checks drawn by its customers in presence of sufficient funds in the customers' accounts.

B) If there are insufficient funds on deposit, the bank may charge the customer's account if it does not create an overdraft.

C) If a bank fails to honor a check because of a mistake on its part, the bank is liable to the customer for damages the customer suffers.

D) The drawee bank has a liability to the holder of the check, regardless of whether the check is certified.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

24) A(n) ________ is a check that is presented for payment more than six months after its date.

A) overdraft

B) postdated check

C) antedated check

D) stale check

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

25) Omar receives a check from Trudy drawn on Shelfari Bank. Shelfari Bank improperly dishonors the check when Omar attempts to cash it. Which of the following is true of this case?

A) Omar is the holder of the check, and hence, has recourse against Trudy, the drawer.

B) Shelfari Bank, the drawee bank, is liable to Omar, the holder, for improperly dishonoring the check.

C) Omar has recourse against both the parties—the drawer, Trudy, and the drawee bank, Shelfari Bank.

D) Omar has recourse against Shelfari Bank, in case Trudy does not reimburse Omar.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

26) Kelley offers Hamilton a $20,000 check which she knows has been forged. Her offer is best known as:

A) chiseling.

B) uttering.

C) altering.

D) remitting.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

27) How does a bank verify the signature of its customers?

A) By the substitute check held by the bank for reference purposes

B) By the signature card filled in by the customer when the account is opened

C) By the signature provided in documents such as passports, ID cards, etc.

D) By the pin number provided by the bank with the ATM card

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

28) Jodie deposits a $527 check from the IRS made payable to her in her checking account. When will the $527 be made available to her?

A) Within seven business days of the date of her deposit

B) Within three business days of the date of her deposit

C) Within ten business days of the date of her deposit

D) The next business day following the date of her deposit

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

29) Which of the following is true of a bad-check statute?

A) The payee does not have the obligation of informing the drawer of the nonpayment of the check.

B) Bad-check statutes are effectively used as a means of collection.

C) The payee can prosecute the drawer immediately after being notified of a bad check by the drawee bank.

D) The drawee bank can prosecute the payee in case of dishonor of a check.

Difficulty: 2 Medium

Topic: The Bank-Depositor Relationship

Learning Objective: 18-02 Clarify the depositor's duties in the bank-depositor relationship.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

30) The absolute time limit for notifying a bank of a forged or altered check is ________ from the time the depositor receives the bank statement.

A) fourteen days

B) thirty days

C) one year

D) three years

Difficulty: 1 Easy

Topic: The Bank-Depositor Relationship

Learning Objective: 18-02 Clarify the depositor's duties in the bank-depositor relationship.

Bloom's: Remember

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

31) Winston was going to be out of town on September 1, when his rent would be due. On August 20 he gave his landlord Becky a check dated September 1, with instructions not to deposit or cash the check until September 1. As the instructions to Becky were clear, he did not notify the bank of the postdated check. On August 21, Becky deposited the check in her account at her bank and the check was dishonored on August 23. Which of the following is true of this scenario?

A) Winston has recourse against Becky as she did not follow his instructions.

B) Winston has recourse against Becky and the bank since it failed to refuse the item when deposited.

C) Winston has recourse against the bank as it failed to notify Winston of the check acceptance and failed to refuse the item when deposited.

D) Winston did not notify the bank not to pay it before the date on the check, hence he has no recourse.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-02 Clarify the depositor's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

32) An oral stop payment ordered by a drawer is valid:

A) for 14 calendar days only.

B) if it is received in time and in such a manner as to afford the bank a reasonable opportunity to act on it.

C) for only one year, unless renewed in writing.

D) only on limited items payable on his or her account, and cannot be used for checks with a value of $500 and above.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-03 Explain a drawer's rights in relation to a stop-payment order.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

33) The first bank to which an item is transferred for collection is called a(n) ________ bank.

A) local

B) remitting

C) depositary

D) intermediary

Difficulty: 2 Medium

Topic: Bank Deposits and Collections

Learning Objective: 18-05 List the different terms used to describe banks during the bank collection process.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

34) If a bank pays a check in cash to the payee, and the check is returned to the drawer with the next bank statement, the bank's settlement is said to be:

A) provisional.

B) final.

C) in due course.

D) honored.

Difficulty: 3 Hard

Topic: Bank Deposits and Collections

Learning Objective: 18-06 Outline a check's life cycle.

Bloom's: Apply

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

35) If a bank uses a substitute check, it makes which of the following warranties?

A) It is not a legal equivalent of the original check.

B) It contains an accurate image of the front and back of the original check.

C) The drawer, indorser, or the depositary bank will be asked to pay a check that has already been paid.

D) Original checks have to be presented to the drawee bank for payment.

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-07 Describe the principal features of the Check 21 Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

36) A consumer has the right to claim an expedited credit if the customer asserts in good faith that the:

A) bank charged the consumer's account for a substitute check that was not given to the consumer.

B) check was not properly charged to the consumer's account.

C) consumer did not suffer a resulting loss.

D) production of another substitute check is necessary to determine the validity of any claim.

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-08 Describe the consumer protection features of the Check 21 Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

37) Tammy's ATM card is stolen. If she notifies the issuer of the card of the theft within two business days of theft, Tammy will be liable for ________ of unauthorized use.

A) $50

B) $100

C) $500

D) $1,000

Difficulty: 3 Hard

Topic: Cyber-Banking

Learning Objective: 18-09 Describe the process of an electronic fund transfer.

Bloom's: Apply

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

38) Electronic ________ is a system in which funds are electronically transferred from a customer's checking account, eliminating the need to process a paper check.

A) fund transfer

B) check transfer

C) check conversion

D) teller system

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-09 Describe the process of an electronic fund transfer.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

39) Planter, Inc. sold $100,000 in plants and plant supplies to Ace Corporation. When the supplies were delivered to Ace, Ace ordered its bank, Fourth National, to pay $100,000 to Planter. Fourth National debited Ace's account and ordered Chase Superior, Planter's bank, to credit Planter's account for $100,000. In this transaction:

A) Planter is the originator and Ace is the beneficiary.

B) Ace is the originator and Chase Superior is the beneficiary.

C) Ace is the originator and Planter is the beneficiary.

D) Fourth National is the beneficiary and Chase Superior, the originator.

Difficulty: 3 Hard

Topic: Cyber-Banking

Learning Objective: 18-10 Discuss the protection given to consumers by the Electronic Fund Transfer Act.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

40) The Identity Theft Penalty Enhancement Act added a new crime called ________ to the original statute.

A) aggravated identity theft

B) fraudulent misrepresentation

C) uttering

D) identity violation

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-10 Discuss the protection given to consumers by the Electronic Fund Transfer Act.

Bloom's: Understand

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

41) Small Bank mistakenly dishonors a $5,000 check written by its customer, Wanda, to Hyram Real Estate as a down payment for a new home. As a result of the dishonor, Wanda's closing is delayed by thirty days. She incurs $500 extra rental expenses, $1,000 in attorney's fees and home mortgage interest rates increase by one half percent before her closing. Hyram deposited the $5,000 check in its account and suffered $300 in NSF charges when credit for the deposit was withdrawn. Discuss the liability of Small Bank to Wanda and Hyram.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

42) Ashton Bank knows that its customer, Juan, has died. One day after Juan's death, Ashton Bank was presented a check for clearing of $3,000. The check was written by Juan a week prior to his death to Bailey Enterprises. Discuss the legal rights of Bailey Enterprises.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

43) Chambers wrote out a check to Smith for $300. Smith attempted to cash the check at Chambers's bank, but the bank refused to honor it even though there was enough money in Chambers's account. Can Smith sue the bank for refusing to honor the check? Explain.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

44) While cleaning out her desk, Chen found a certified check she had received eight months earlier and had forgotten to cash. When she brought the check to the bank on which it was drawn, the bank refused to cash it. Discuss the legal rights of the parties in this case.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

45) Linda's checkbook is stolen on January 1 and three checks are forged on her account at Strata Bank. This first appears on a bank statement delivered to her on February 15, but Linda does not examine the statement until March 5. She reports the forgery to the bank on March 6. The other two forged checks do not appear on other bank statements until April 15, and Linda reports them to the bank on April 20. Discuss the case.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

46) Oliver wrote a check to Greg Motors for $4,000 drawn on Uphill Bank in payment for a secondhand car. Greg Motors deposited the check in its account at Seventh Day Bank, which sends the check to Uphill Bank for collection. Oliver's car broke down before he reached home that evening, and he contacted his bank to stop payment on the check. Discuss what Uphill bank must do with the check to ensure a stop payment.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-01 Clarify the bank's duties in the bank-depositor relationship.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

47) Josie writes a check on January 15 to Rusty Enterprises, but later realizes that the merchandise she purchased was of poor quality. She gives a stop payment order to the bank on January 20. Her bank has the check in its possession and is accepting it as she completes her stop payment order. Her bank pays the check, and Josie demands that her account be recredited. Discuss the legal aspects of this situation.

Difficulty: 3 Hard

Topic: The Bank-Depositor Relationship

Learning Objective: 18-03 Explain a drawer's rights in relation to a stop-payment order.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

48) Dreamwork Bank uses the substitute check procedure to rapidly obtain payment of items deposited by its customers. An employee of the bank fraudulently alters some substitute checks so that they are for greater amounts than the original paper check and embezzles the difference. Discuss the bank's warranties in this situation.

Difficulty: 3 Hard

Topic: Cyber-Banking

Learning Objective: 18-07 Describe the principal features of the Check 21 Act.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

49) Jill's account with Small Bank is improperly charged with a $3,000 substitute check that was actually Bob's check drawn on Small Bank. Discuss Jill's legal rights and what she must do to rectify this situation.

Difficulty: 3 Hard

Topic: Cyber-Banking

Learning Objective: 18-08 Describe the consumer protection features of the Check 21 Act.

Bloom's: Analyze

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation

50) Al is considering making a purchase from an online merchant. Discuss the relative advantages Al has if he uses a credit card or a debit card for the purchase.

Difficulty: 2 Medium

Topic: Cyber-Banking

Learning Objective: 18-09 Describe the process of an electronic fund transfer.

Bloom's: Evaluate

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation