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My CPA-REGmodule29

Notecards I made from Wiley's 2012 CPA Exam Review

QuestionAnswer
In a secured transaction, who is the secured party? The debtor? What is the security interest? Security agreement? 1.person/bank providing credit to debtor, takes interest in debtors collateral 2.person(entity) that owes payment/performance to secured party 3.legal interest in collateral securing debtors payment/performance 4.transaction that creates security inter
What are the types of collateral that can be given in a secured transaction? goods (classified by initial reason debtor bought), indispensable paper(need written evidence), intangibles
What are the good classifications for collateral?IMPORTANT consumer goods (personal use), equipment goods (purchased for use in business), Inventory goods (purchased for sale/lease to 3rd party), Fixtures(permanent/relatively permanent attachments to real property), Farm products(produced on farm,livestock/crops)
What are the indispensable paper for collateral? What is chattel paper? instruments (negotiable, stocks, bonds, investment securities), documents of title(bills of lading/warehouse receipts) 2.writing providing evidence of monetary obligation/security interest in good
What are the intangibles included for collateral? account/account receivable, commercial tort claim, general intangibles (intellectual property rights, goodwill)
What are the requirements of a valid security agreement? agreement must be in writing (unless creditor has physical possession of collateral(a pledge), signed by the debtor, reasonable description of the collateral
What does the attachment of security interests mean? attachment is the moment when security interest is enforceable against a debtor by a secured party
When does security attachment occur? IMPORTANT ALL of following occur -secured party gives value (preexisting claim not consideration but is VALUE) -debtor has RIGHTS (legal title not required) in collateral -Valid security agreement(unless secured party has a pledge)
What does a perfect security interest enable? gives secured party priority over many other parties that may claim collateral (has steps in addition to attachment) -focuses on rights between creditor and and various other parties that may claim interest on collateral
What are the three primary ways an attached security may be perfected? IMPORTANT filing financing statement in appropriate state office, secured party takes possession/control of collateral, automatic perfection (only with consumer goods)
in perfection by filing a financing statement, what are the financing statement requirements? How do minor errors affect the statement? How long do filings last? 1.names(not signatures) debtor/secured party, indicate collateral covered 2.do not invalidate if not seriously misleading 3.5 years, may be continued file continuation statement w/in 6 months expiration or refilled
What entitles possession in a perfection secured by parties possession or control of collateral? control? How are expenses to preserve the collateral dealt with 1.actual physical possession 2.applies to collateral that cannot be physically possessed, electronic documents to title, deposit accounts, or investment property 3.must use reasonable care to preserve, may charge debtor reasonable expenses to do so
Under what conditions is perfection accomplished (automatic) with no additional steps to attachment? -Purchase money security interest(PMSI) in consumer goods -sale of promissory notes -assignment of health care insurance to health care provider -temp auto perfection(20 days) for instruments/certified securities/negotiable docs
How does a purchase money security interest occur? IMPORTANT 1.seller retains security interest in same item sold on credit to secure payment 2.another party(bank) provides loan for and retains security interest in same item purchased by debtor
Can a perfection by attachment occur for motor vehicles or trailers? What happens if merchant has security interest in goods sold to consumer and then consumer sells goods to another consumer unaware of the security interest? 1.No, perfected with a lien(legal claim) on certificate of title with state 2.automatic perfection is not effective unless secured party filed a financing statement or final user uses consumer good for non consumer use
What does a floating lien (after-property clause) allow the secured party to do? acquire a security interest in goods that debtor acquires in the future (not permitted on consumer goods)
How is computer software embedded in goods treated, separately or as apart of the good? As a part of the goods, not as software
What is field warehousing used for? What does the debtor do? Secured party? 1.perfect security interest(similar to possession/control) 2.keeps inventory on premises under control of third party(secured party employee/bonded warehouseman) 3.keeps control over inventory use separate room or fenced off portion w/sign showing contr
What is a true consignment? When does one exist? What must a consignor do to perfect his interest? 1.consignee is simply sales agent who doesnt own goods but sells for consignor 2.consignor retains title/proceeds(consignee commission), consignee no obligation to buy 3.file financing statement, give consignee creditors notice before ee get possession
If more than one party claims a security interest in the same collateral, and both parties are secured, how is priority determined? VERY IMPORTANT -perfected prevail over unperfected -neither perfected interest attached first prevails -both perfected first interest perfected prevails -PMSI take priority over all other security interests
How does a party become a PMSI for equipment goods? consumer? inventory? 1.file financing statement w/in 20 days after debtor receives possession 2.automatic 3.perfection must occur prior to or simultaneously to debtor receiving collateral, written notice given to all holders of prior perfected security interest in collatera
How is priority determined between secured creditors and subsequent buyers of collateral? IMPORTANT -buyer in ordinary course of business(inventory of person normally dealing in goods) take goods free of any security interest whether perfected or not -buyer may know of security agreement, must have possession though
What is the difference between buyers in the ordinary course of business and subsequent bona fide purchaser from consumers when it comes to priority interest in securities? bona fide purchaser (from consumer to consumer) only defeats perfection on attachment unless filing takes place -buyer may or may not be consumer. Seller IS dealer in the goods
What is the priority when the problem in question is secured creditors versus other creditors? -possessor of negotiable doc > other creditors -Lien creditor priority over unperfected security interest & over security interest perfected after attachment of lien(unless purchase money security perfected w/in 20days) -bankruptcy trustee=lien creditor
If the debtor defaults, and the collateral consists of claims who has the right of collection from third parties? the secured party, may notify 3rd party to pay secured party directly, must account for any surplus and debtor liable for deficiency, may deduct reasonable expenses
If the debtor defaults, can the secured party breach the peace (break law, i.e trespass) to take possession/control of the collateral from the debtor? Nope, use judicial process to foreclose on collateral
How would the secured party propose to satisfy obligation by retaining collateral once debtor defaults? Is their a requirement for this to occur? What about for a PMSI in consumer goods? 1.-send written notice to debtor -notify other secured parties who sent written notice of their interest 2yes debtor must have paid < 60% of the purchase price/obligation 3.if paid >60% secured party must sell collateral w/in 90 days after take possess
What are the stipulations for a secured party to sell collateral after debtor defaults? -must use commercially reasonable practices(debtor cant waive this right) -must sell within reasonable time -must notify debtor(&other secured parties w/written interest) of time/place of public sale or time private sale will happen
If a secured party sold the collateral after the debtor defaulted, what is the order of the distribution of sale proceeds? -secured partys expenses -secured partys debt -junior security interests -remainder goes to debtor
What could the debtor do to redeem their collateral after they already defaulted? pay entire debt AND secured partys reasonable expenses
Created by: Bsantoro