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3. Must be payable on demand, or at a fixed or determinable future time.

4. Must be payable to order or to bearer; and

5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

Additional Provisions Not Affecting Negotiability. An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which:

1. Authorizes the sale of collateral securities in case the instrument is not paid at maturity; or

2. Authorizes a confession of judgment if the instrument be not paid at maturity; or

3. Waives the benefit of any law intended for the advantage or protection of the obligor; or

4. Gives the holder an election to require something to be done in lieu of payment of money.

But nothing in this section shall validate any provision or stipulation otherwise illegal.



Non-essentials to Negotiability. The validity and negotiable character of an instrument are not affected by the fact that:

It is not dated; or

Does not specify the value given, or that any value has been given therefor; or

3. Does not specify the place where it is drawn or the place where it is payable.

When Date May Be Inserted. Where an instrument expressed to be payable at a fixed period after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course, but as to him, the date so inserted is to be regarded as the true date.

When Blanks May Be Filled In. Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument, when completed, may be enforced against any person who became a party thereto prior to its completion, it must be filled up strictly in accordance with the authority given and within a reasonable time. if such instrument, after completion, is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a reasonable time.

When Provisions Conflict

1. Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail.

2. Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable.


1. In examining securities, what data should be recorded to protect the auditor? What is to be apprehended? C. P. A. Ohio.

2. A concern has established a sinking fund for the retirement of a mortgage. An investment has been made in bonds the present market value of which is below cost. Would you inventory them at market value or at book value? Why? C.P.A. Mich.

3. Your verification of the securities of a corporation has to be made at a date about two months subsequent to the date of the Balance Sheet you are asked to certify. Can you suggest steps which will enable you to do this without risk of overlooking serious overstatement?

Inst. Ex. 1918. 4. Describe two different methods for writing off the premiums on bonds and state which, in your opinion, is the best method. .

Inst. Ex. 1917. 5. In auditing a trust company's accounts, you find that the company is cotrustee for a number of estates. The securities are locked in a safe deposit box that cannot be opened without the assistance of the absent trustee, who will be away for several months. What precautions should be taken to safeguard the integrity of your audit?



1. State in form of journal entries on books of John Brown the following transactions:

(a) Installment notes given by him on purchase of real estate; face of notes includes interest charges up to and including maturity of notes.

(b) Note of John Jones returned from the bank with a protest charge after having been left for collection.

C. P. A. Ark. and Me. 2. The Oak Furniture Company placed $50,000 of its undivided earnings in the hands of a broker to invest in United States 4% bonds. The bonds were $1,000 each and cost 101%, commission Y8. Prepare journal entries to record properly the transaction on the company's books.

C. P. A. N. Y. 3. Give examples of the proper entries when the following transactions occur in respect to Notes Receivable:

1. When a note is received.

When a note is discounted.
3. When a note is paid.
4. When a note is partly paid and a new note given

for the balance.
5. When a note is collected by the bank.
6. When a note is protested.

C. P. A. Mich. 4. A company is under obligations to pay $10,000 to sinking fund trustees "out of profits". The following transactions take place: 1914-Dec. 31. $10,000 cash paid to sinking fund trus

1915-Jan. 5. Trustees invest $10,000 of the 5%

bonds of the company at ninety

eight and interest (from January 1.) July 1. Coupons on above bonds collected.

Dec. 31. $10,000 paid to sinking fund trustees. 1916-Jan. 1. Coupons collected.

2. $11,000 bonds bought for sinking fund

at ninety-five.
July 1. Coupons collected.
Dec. 31. $125 paid for expenses of sinking fund.

31. $10,000 paid to sinking fund trustees.
1917-Jan. I. Coupons collected.

10. $10,000 bonds bought at one hundred

and one and interest. Give the journal entries on the company's books for the above transactions.

Inst. Ex. 1917. C. LEGAL QUESTIONS

1. State all the essential legal requirements of a contract constituting a valid negotiable note. Inst. Ex. 1917.

2. A executes and delivers to B an undated negotiable note, payable 60 days after date. B inserts a wrong date (not the date of delivery) and the note passes in due course to C. What is the effect of the insertion as to the maturity of note as to C? Does it avoid the instrument in his hands?

Inst. Ex. 1918. 3. Under the Negotiable Instrument Law:

(a) If there is a conflict between the written and printed provisions in a note, which one controls?

(b) Where there is a discrepancy between the words and figures in a note, which one controls?

C. P. A. Mich. 4.

New York, October 1, 1917 One month after date I promise to pay John Smith Five Hundred Dollars for value received, negotiable and payable without defalcation or discount.

(Signed) Henry Jones. Is the above note negotiable or not? Give reasons.

Inst. Ex. 1917 5. Are the following notes negotiable or not? Give reasons. (a)

No date, nor place. I promise to pay bearer One Hundred Dollars.

(Signed) A. B. (b)

January 5, 1917. Due A. B. or order on demand One Hundred Dollars.

(Signed) C. D. . (c)

Chicago, Sept. 5, 1916. On or before Dec. 1, 1916, I promise to pay to C. D. or order One Hundred Dollars.

(Signed) A. B. (d)

New York, April 10, 1916. On...

I promise to pay to the order of C. D. One Hundred Dollars.

(Signed) A. B. Inst. Ex. 1917.

Chapter Six


Reference to the Trial Balance on page 50 of Chapter Four will show that the amount of accounts receivable on December 31, 1918, taken from the books of the Blank Manufacturing Company, is $81,687.00.

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The Sales Ledger. While accounts with customers may be kept in the general ledger, it is usually better practice to keep a subsidiary ledger containing only the accounts with trade customers. Different titles as applied to such a ledger were discussed in Chapter Three, page 36. It is important that only trade customers' accounts be kept in this ledger. Any accounts with officers, stockholders or employees should be kept in the general ledger and should be listed on the Balance Sheet as a separate item. Under no circumstances, should such accounts be included with accounts receivable.

The Sales Ledger Controlling Account. If a subsidiary ledger is kept with customers, it will be necessary to keep a controlling account in the general ledger. The purpose of such an account is to show the total amount due from customers without the necessity of preparing a schedule of all accounts in the sales ledger.

To establish a subsidiary sales ledger and a controlling account in the general ledger, assuming that customers' accounts have previously been kept in the general ledger, make a journal entry as follows: Sales Ledger.....

Accounts with customers..
To establish a subsidiary ledger for
accounts with trade customers. See
schedule of customers' accounts following:
(There should follow a schedule of all cus-
tomers' accounts showing balances due.)



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