2011 regulation 6 text update

8/2/2019 2011 Regulation 6 Text Update

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This first page gives a listing of the corrected lecture text pages that follow. Print these correctedpages and insert in the lecture text.

REGULATION

Date Added Lecture Page Number Description

03/14/2011 R-6 10 Reworded sentence03/14/2011 R-6 65 Text change (simulation)

03/14/2011 R-6 66 Text change (simulation)

03/14/2011 R-6 67 Text change (simulation)


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Regulation 6 Becker Professional Education | CPA Exam Review

R6-10 2010 DeVry/Becker Educational Development Corp. All rights reserved.

1. Order Payable to the Order of a Specified Party

Order paper must state that it is payable to the order of an identified person (e.g., "Payto the order of John Smith") or payable to an identified person or order (e.g., "Pay JohnSmith or order"). If a note or draft simply says "pay John Smith" without one of the

"magic words" above, it will not be negotiable , unless the instrument is a check.2. Bearer Payable to Anyone Who Possesses It

Bearer paper is payable to anyone who has possession of it. An instrument is payableto bearer if it is payable: "to bearer," "to the order of bearer," to a named person " or bearer" (e.g., "pay John Smith or bearer"), to a named person " and bearer" or to"cash," or to the order of "cash."

Note: If an instrument is payable to bearer, it need not include the word "order" (i.e., an instrumentthat says "pay bearer" can be negotiable; it need not say "pay to the order of bearer").

E X A M P L E

No. 125

DATE

Pay to theorder of $The bearer of this instrument

One Thousand and 00/100 - - - - - - - - - - - - - - - - - - - - -dollars

memo By /s/ Murray Maker

1,000.00Phil Payee

March 1, 2011

The above instrument is negotiable because it contains the "magic words" of negotiability ("tobearer").

3. Checks Do Not Need to be Payable to Order of Bearer

A check is negotiable even if it does not have the "magic words" of negotiability. Thus,a check that states "Pay Phil Payee," is negotiable even though it is not payable to the"order of Phil Payee."

G. No Unauthorized Promises

An instrument will not be negotiable if it contains any promises in addition to the promise topay except for the following authorized promises:

1. An authorization to give, maintain, or protect collateral;

2. A term authorizing confession of judgment or disposition of the collateral if theinstrument is not paid when due; and

3. A term that waives the benefit of laws intended for the benefit of the obligor (e.g.,waivers of rights to trial by jury, homestead allowances, and the like).

P A S S K E Y

Remember these authorized promises do not destroy negotiability and neither do the additional terms set outearlier, regarding interest, prepayment penalties, and attorneys' fees. The examiners often use promisesregarding the collateral, promises to pay legal fees, waivers of the right to jury trial, and promises to pay aprepayment penalty as answer choices. These will not destroy negotiability.

Bearer


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Becker Professional Education | CPA Exam Review Regulation 6

2010 DeVry/Becker Educational Development Corp. All rights reserved. R6-65

TA S K - B A S E D S I M U L AT I O N S

T A S K - B A S E D S I M U L A T I O N S A M P L E 1 S u r e t y s h i p

Jane wishes to obtain a loan of $90,000 from Silver. At the request of Silver, Jane has entered into an agreementwith Bing, Piper and Long to act as co-sureties on the loan. The agreement between Jane and the co-suretiesstated that the maximum liability of each co-surety is as follows:

Bing $60,000; Piper $30,000; Long $90,000

Based upon the surety relationship, Silver agreed to make the loan. After paying three installments totaling$30,000, Jane defaulted.

For items 1 and 2, double click on the shaded cells in Column A and select the correct answer from the optionchoices provided. An answer may be selected once, more than once or not at all.

Item Column A

1. Prior to making payment, the co-sureties may seek the remedy of:

2. A distinction between a surety and a co-surety is that only a co-surety isentitled to:

For items 3, 4, and 5, assume that Long properly paid the entire debt outstanding of $60,000. Record the dollar value in Column A that Long could recover from the other co-sureties.

Item Column A

3. What is the amount Long may collect from Bing?

4. What is the amount Long may collect from Piper?

5. For this item only, if Piper's debts, including his surety obligation to Silver,were discharged in bankruptcy, what is the amount Long may collect fromBing?

Negotiability

Contribution

Reimbursement

Subrogation

Exoneration


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Regulation 6 Becker Professional Education | CPA Exam Review

R6-66 2010 DeVry/Becker Educational Development Corp. All rights reserved.

T A S K - B A S E D S I M U L A T I O N S A M P L E 2 C o m m e r c i a l P a p e r

During an audit of Trent Realty Corp.s financial statements, Clark, CPA, reviewed the following instrument:

The following transactions relate to the instrument.

On March 15, Year 1, Dart endorsed the instrument in blank and sold it to Morton for $275,000. On July 10, Year 1, Evans informed Morton that Dart had fraudulently induced Evans into signing the

instrument.

On August 15, Year 1, Trent, which knew of Evans claim against Dart purchased the instrument fromMorton for $50,000. Morton endorsed the note before delivering it to Trent.

For each item, double click on the shaded cells in Column A and select the correct answer. An answer may beselected once, more than once or not at all.

Item Column A

1. The instrument is a:

2. The instrument is:

3. On July 10, Year 1, Morton would have been considered a:

4. Trent is considered a:

5. Trent could recover on the instrument from:

$300,000 Belle, MDSeptember 15, Year 1

For value received, ten years after date, I promise to pay to the order of Dart Finance Co.

Three Hundred Thousand and 00/100 dollarswith interest at 9% per annumcompounded annually until fully paid

This instrument arises out of the sale of land located in MD.

It is further agreed that:

1. I will pay all costs of collection including reasonable attorney fees.

2. I may prepay the amount outstanding on any anniversary date of this instrument.

G. Evans G. Evans

Priorities to Collateral

Draft

Promissory note

Security agreement

Negotiable

Non-negotiable

Holder

Holder in due course

Holder with the rights of aholder in due course under the shelter provision

Evans, Morton and Dart

Morton and Dart

Dart only


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Becker Professional Education | CPA Exam Review Regulation 6

2010 DeVry/Becker Educational Development Corp. All rights reserved. R6-67

T A S K - B A S E D S I M U L A T I O N S A M P L E 3 P r i o r i t i e s t o C o l l a t e r a l

Several parties have an interest in the same property. For each interest listed below, indicate the order of priority

by assigning the numbers 1 through 6, where 1 represents the highest order of priority and 6 represents the lowest.

1. Creditor who attaches April 2 and perfects his or her security interest ininventory goods by filing July 1.

2. Debtor.

3. Buyer in the ordinary course of business.

4. Purchase Money Security Interest in inventory goods filed May 13 withdebtor taking delivery of the goods May 14 without giving notice to prior creditors.

5. Creditor who files May 1 and attaches a security interest in debtor's

inventory on May 2.

6. Purchase Money Security Interest in inventory goods filed April 26 withdebtor taking delivery of the goods May 8, and with notice to prior securedcreditors.

Property Terminology

2011 regulation 6 text update

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