Accounting Basics Paper 3

1

Mane Bank lent Eller $120,000 and received securities valued at $30,000 as collateral. At Mane’s request, Salem and Rey agreed to act as uncompensated cosureties on the loan. The agreement provided that Salem’s and Rey’s maximum liability would be $120,000 each. Mane released Rey without Salem’s consent. Eller later defaulted when the collateral held by Mane was worthless and the loan balance was $90,000. Salem’s maximum liability is






2

Lane promised to lend Turner $240,000 if Turner obtained sureties to secure the loan. Turner agreed with Rivers, Clark, and Zane for them to act as cosureties on the loan from Lane. The agreement between Turner and the cosureties provided that compensation be paid to each of the cosureties. It further indicated that the maximum liability of each cosurety would be as follows: Rivers $240,000, Clark $80,000, and Zane $160,000. Lane accepted the commitments of the sureties and made the loan to Turner. After paying ten installments totaling $100,000, Turner defaulted. Clark’s debts, including the surety obligation to Lane on the Turner loan, were discharged in bankruptcy. Later, Rivers properly paid the entire outstanding debt of $140,000. What amount may Rivers recover from Zane?






3

Which of the following rights does one cosurety generally have against another cosurety?






4

Which of the following is not one of the approaches for reporting accounting changes?






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