[Three Checks] on January 1, Jerome Writes Two Checks and Dates

question 83

Multiple Choice

[Three Checks] On January 1, Jerome writes two checks and dates them January 15, as he is waiting for a large deposit to clear on January 5. The first check is to Rhea, and the second check is to Treya. Treya deposits her check on January 2, but she is notified that the check is dishonored for insufficient funds. On February 1, Jerome writes a check for $50 to Kaleb. Kaleb adds a "0" to the check amount and scratches out the word "Fifty" and writes "Five Hundred" and deposits the check. Jerome dies on April 1. Rhea deposits her check on April 15, but the bank dishonors Rhea's check.
-Who is responsible for the check to Treya?

• A) Jerome, because someone who writes a check without sufficient funds is always liable, regardless of whether he notified the bank that the check was postdated.
• B) Jerome, because he should have told Treya not to deposit the check until after January 15.
• C) Treya, because the check clearly identified the date of January 15, and she bears the risk of depositing the check early.
• D) The bank, but only if Jerome had notified the bank that he had postdated the check.
• E) The bank is always responsible for failing to hold funds prior to the date of the check.

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Definitions:

Redeemed

Usually refers to the repurchase or paying off of a debt or equity security at its original value or at a predetermined value before it matures.

Effective Interest Rate Method

The effective interest rate method is a technique for calculating the actual interest rate for a financial product over its life, considering compounding.

Bonds Payable

A long-term liability account that records the face value of the bonds a company is obligated to repay at a specified future date.

Contract Interest Rate

The rate of interest stated in a loan or credit agreement that must be paid on the principal by the borrower.