1. The UCC requires that a precise form be followed in order to create a security interest.
a.
True
b.
False
2. Commercial paper is a term that describes short-term corporate indebtedness.
a.
True
b.
False
True
Easy
23-2 Commercial Loan Categories
3. A revolving loan is based upon the continuous extension of credit of an unlimited amount.
a.
True
b.
False
False
Easy
22–2b Loans Categorized by Purpose
4. A commitment fee is an amount a lender requires as consideration for its promise to keep a commitment to loan
available.
a.
True
b.
False
True
Easy
5. Agreements for term or revolving loans may call for mandatory prepayment when certain events occur.
False
Easy
23–3c Formal Requirements
a.
True
b.
False
6. In order to reflect the greater risk to the lender, secured loans are priced at a higher rate than unsecured loans.
a.
True
b.
False
False
Moderate
23-3 Secured Transactions Under Article 9 of the UCC
7. If a borrower fails to repay a secured loan, the lender may foreclose on the collateral.
a.
True
b.
False
True
Moderate
23-3 Secured Transactions Under Article 9 of the UCC
8. Under a guaranty of collection, the guarantor becomes obliged to pay only after the lender has attempted unsuccessfully
to collect the amount due from the primary debtor.
a.
True
b.
False
True
Moderate
23–5a Payment Versus Collection
9. National banks acting as lenders are subject to state usury laws.
a.
True
True
Moderate
23–1c Description of the Loan
b.
False
10. In CASE 23.2 Executive Benefits Insurance Agency v. Arkinson (2014) the U.S. Supreme Court ruled that some claims
Congress labeled as “core” (so-called Stern claims) cannot be adjudicated by a bankruptcy court even if all the parties
consent to the bankruptcy court’s jurisdiction in advance.
a.
True
b.
False
True
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–10a Bankruptcy Courts
Blooms: Analysis
11. A purchase money security interest in consumer goods is an automatically perfected security interest.
a.
True
b.
False
True
Moderate
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–3f Perfecting a Security Interest
BLooms: Comprehension
12. After-acquired property is property that the debtor acquires after the repayment of a loan under a security agreement.
a.
True
b.
False
False
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–3e Security Agreement
13. The UCC provides that, unless otherwise agreed, a security agreement gives the secured party a security interest in the
proceeds if collateral is sold, exchanged, collected, or otherwise disposed of.
False
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1c Description of the Loan
Blooms: Comprehension
a.
True
b.
False
14. A debtor does not have to show it is insolvent to file for bankruptcy.
a.
True
b.
False
True
Moderate
23–11a Good Faith Requirement
15. A creditor’s claim in bankruptcy may be involuntarily postponed through application of the doctrine of equitable
subordination.
a.
True
b.
False
True
23–6c Equitable Subordination
16. Chapter 13 does not provide a bankruptcy discharge for corporations.
a.
True
b.
False
True
Moderate
23–16 Consumer Bankruptcy Under Chapter 13
17. A repayment plan under a Chapter 11 bankruptcy must either be accepted unanimously or pass the “best interests of
creditors” test.
a.
True
True
Moderate
23–3b Terminology
b.
False
18. Payments in the ordinary course of business made within 90 days prior to a Chapter 11 bankruptcy filing are voidable
as a preference.
a.
True
b.
False
False
Moderate
23–12 Chapter 11 Reorganizations
19. The debtor-in-possession must honor all prebankruptcy executory contracts.
a.
True
b.
False
20. A purchase-money security interest in consumer goods is automatically perfected.
a.
True
b.
False
True
Moderate
23–3f Perfecting a Security Interest
21. While state restrictions may apply, there are no federal restrictions on lenders and borrowers entering into transactions
whereby secured credit will be sued to acquire stock.
a.
True
True
Moderate
23–12 Chapter 11 Reorganizations
b.
False
22. A number of states have enacted legislation providing that loan commitments must be in writing to be enforceable.
a.
True
b.
False
True
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1b Commitment to Make a Loan
Blooms: Knowledge
23. Congress is given the power to enact bankruptcy laws by:
a.
a delegation of authority by the President.
b.
the U.S. Constitution.
c.
rulings of the Supreme Court.
d.
inherent powers under federalism.
Easy
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Introduction: Salvaging a Business in Financial Trouble
Blooms: Knowledge
24. A __________ interest rate fluctuates throughout the life of the loan according to the interest rate that the lender
would pay if it borrowed the funds in order to relend them.
a.
fixed
b.
principal
c.
base
d.
floating
23–1c Description of the Loan
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1c Description of the Loan
Blooms: Knowledge
False
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–2b Loans Categorized by Purpose
Blooms: Comprehension
25. Requirements that must be met under the loan agreement before the lender’s obligations arise are known as:
a.
conditions precedent.
b.
conditions concurrent.
c.
conditions subsequent.
d.
loan qualifiers.
26. In a(n) __________ loan, more than one lender enters into concurrent direct obligations with the borrower to make the
loan.
a.
participation
b.
term sheet
c.
syndicated
d.
illegal
c
Moderate
United States – BUSBROG: – Analytic
23–1a Parties to the Agreement
Blooms: Comprehension
27. __________ a security interest involves making it valid as against other creditors of the debtor.
a.
Finalizing
b.
Perfecting
c.
Organizing
d.
Signing
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–3d Rights and Remedies
Blooms: Comprehension
28. An equipment lease that serves the purpose of financing is known as a(n) __________ lease.
a.
finance
b.
temporary
c.
lending
d.
debtor’s
a
Easy
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1f Conditions to Closing
Blooms: Comprehension
29. A provision in a loan agreement that the borrower cannot incur additional debt beyond a certain amount is an example
of a(n) __________ covenant.
a.
absolute
b.
prohibitive
c.
negative
d.
affirmative
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1g Covenants
Blooms: Comprehension
30. A(n) __________ loan is one in which the original lender sells shares to other parties.
a.
master
b.
syndicated
c.
participation
d.
attached
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1a Parties to the Agreement
Blooms: Comprehension
31. A loan agreement may be preceded by a(n) __________ which is a letter outlining the terms and conditions on which
the lender will lend.
a.
term sheet
b.
advance notification
c.
contract addendum
d.
attachment
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–4a Differences Between True and Finance Leases
Blooms: Comprehension
32. A(n) __________ clause in a loan document provides that any breach by the borrower under any other loan agreement
constitutes an event of default.
a.
attached
b.
dragnet
c.
cross-default
d.
cross collateralization
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1h Events of Default
Blooms: Knowledge
33. Which of the following makes a security interest created under Article 9 a floating lien?
a.
The provision that, unless otherwise agreed, a security agreement gives the secured party a security interest in
the proceeds if the collateral is sold, exchanged, collected, or otherwise disposed of.
b.
The provision that, unless otherwise agreed, a security agreement fails to give the secured party a security
interest in the proceeds if the collateral is sold, exchanged, collected, or otherwise disposed of.
c.
The provision that, unless otherwise agreed, interest rates will vary depending on the prime rate of interest.
d.
The provision that, unless otherwise agreed, the parties will not sell, exchange, collect, or otherwise dispose of
property and that if such an action is taken, all sums owed become immediately due.
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–3e Security Agreements
Blooms: Comprehension
34. A(n) __________ guaranty is enforceable only with respect to a specified transaction or series of transactions.
a.
attached
b.
upstream
c.
restricted
d.
payment
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–5c Restricted Versus Continuing
Blooms: Comprehension
35. A __________ is an agreement whereby one or more creditors of a common debtor agree to defer payment of their
23–1b Commitment to Make a Loan
Blooms: Comprehension
claims until another creditor of the same debtor is fully paid.
a.
participation loan
b.
cross-collateralization
c.
debt subordination
d.
lien subordination
36. Which of the following is NOT true regarding remedies for default of a security agreement?
a.
After default, the secured party has the right to take possession of the collateral so long as judicial process is
followed.
b.
After properly taking possession of the property, the secured party may then dispose of the collateral at a
public or private sale.
c.
If there is a surplus from the sale of collateral, the secured parry is required to return it to the debtor.
d.
If there is a deficiency from the sale of collateral, the debtor remains liable for that amount
a
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–3e Security Agreements
Blooms: Comprehension
37. In CASE 23.1 Tufankujian v. Rockland Trust Co. (2003) Tufankujian signed a contract to acquire a Toyota dealership
for $1.4 million. Rockland agreed to lend Tufankujian $700,000 at 7.5% interest, with the remaining $700,000 to come
from the SBA at a separate interest rate which was quoted by Rockland at 6.5% (but with no written guaranty).
Ultimately, the loan was not consummated and Tufankujian sued. How did the court rule?
a.
The court dismissed Tufankujian’s claims.
b.
The court held Tufankujian breached his duty of good faith and fair dealing and awarded damages
to Rockland.
c.
The court held Rockland had committed fraud but only awarded Tufankujian nominal damages of $1.
d.
The court held Rockland breached its duty of good faith and fair dealing and awarded damages to Tufankujian.
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
23–7b Breach of Duty of Good Faith
Blooms: Analysis
38. Which of the following is NOT true regarding methods of perfection?
a.
A security interest in a deposit account may be perfected only by taking control of the collateral.
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23-6 Subordination
Blooms: Comprehension
b.
A security interest in a letter-of-credit right may be perfected only by taking control of the collateral.
c.
A security interest in money may be perfected either through possession or through filing a financing
statement.
d.
For a limited period, a purchase-money security interest in consumer goods is automatically perfected.
39. An equipment lease that serves the purpose of financing is known as a(n) __________ lease.
a.
credit
b.
finance
c.
unterminal
d.
revokable
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–4a Differences Between True and Finance Leases
Blooms: Comprehension
40. A bank’s __________ rate is the lowest published rate of interest at which the bank lends to its best and most
creditworthy commercial customers.
a.
lien
b.
term
c.
prime
d.
secured
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–1c Description of the Loan
Blooms: Comprehension
41. In order to arrive at an actual interest rate, a __________ is an amount added to the bank’s theoretical cost of obtaining
funds to lend.
a.
spread
b.
base
c.
reference
d.
security
a
c
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
23–3f Perfecting a Security Interest
Blooms: Application