2009 R-6 Class Notes - Becker CPA Review Regulation 6 Class...

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Becker CPA Review – Regulation 6 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. REGULATION 6 CLASS NOTES This lecture covers commercial paper, secured transactions and real property. According to the AICPA’s Content Specification Outline these items and the items found in R6 and R7 should make up between 20% and 25% of your Regulation examination. COMMERCIAL PAPER I. Terminology A. There are four important steps to analyze for commercial paper: 1. Determine whether the instrument is a note or draft. 2. Determine whether the instrument is negotiable. 3. Determine whether the holder qualifies as a holder in due course. 4. Determine whether the maker/drawer has a "real" or "personal" defense. B. Two Party Paper – Notes – a promise by the "maker" to pay money to the "payee," or "bearer." Certificate of Deposit - issued by a bank acknowledging receipt of money. C. Three Party Paper – Drafts – "drawer" orders "drawee" to pay a third party. Checks Always payable " on demand " and the "drawee" must be a bank. Trade Acceptance special type of "draft" that is drawn by a seller ordering the buyer to pay. The buyer is typically the drawee and accepts the instrument for payment. D. Demand vs. Time Instrument – An instrument payable on "demand" is a demand note or draft. An instrument payable at a future date is a time note or draft. II. Negotiability (Step 2) A. The front of the instrument determines the negotiability. B. Must meet the technical requirements under the UCC. 1. Be a writing. 2. Signed by the maker (note) or drawer (draft). The UCC is very liberal about the signing requirement; it could be an X if the maker cannot write. 3. Contain an unconditional promise (note) or order (draft) to pay. If the payment is "conditional," the instrument is not negotiable. 4. Be for a fixed amount of money. Not money and/or goods or services. Money only. With interest (percentage stated or unstated) is okay. 5. Payment is on demand or at a definite time. 6. Payable to order or to bearer. 7. Contain no undertaking or instruction not authorized by the UCC. III. Negotiation-Holder in Due Course (Step 3) A. The instrument must be transferred in a proper way. This is called negotiation. The UCC protects the "Holders in Due Course" (HDC). B. Steps in becoming a holder. A holder is a person with good title to the commercial paper. C. Bearer Paper requires mere delivery . Order paper requires delivery and endorsement .
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Becker CPA Review – Regulation 6 Class Notes 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. D. Last endorsement on the back of the instrument controls whether it is order or bearer paper. E.
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2009 R-6 Class Notes - Becker CPA Review Regulation 6 Class...

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