Fact Pattern 27-1A

question 67

Multiple Choice

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.

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Definitions:

Accounts Receivable

The total amount of money owed to a company by its customers for goods or services provided on credit.

Direct Write-off Method

A method of accounting for bad debts that involves charging unpaid invoices directly to the expense account at the time they are determined to be uncollectable.

Expense

Outflows or other using up of assets or incurring of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations.

Asset

Resources owned by a company that are expected to provide future economic benefits, including tangible and intangible items like property, equipment, and trademarks.