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California: “Trust Fund Handling Course” Questions only (no answers) Answers will be revealed with proper subscription
1. What is the proper way for a broker to handle an advance fee? a. Place it in a trust account b. Return it to the maker of the check within 48 hours c. Hold it until the date on the check d. Use it only to pay expenses on behalf of the client
2. Which of the following is TRUE of a broker’s trust account? a. It may be a subaccount of the broker’s personal checking account. b. It may not be an interest-bearing account requiring prior notice for withdrawals. c. It may be placed in any financial institution operating in the United States or Canada. d. It may not have subaccounts for individual owners of funds.
3. When a broker receives purchase money deposits for more than eight broker-owned properties in one year, pending completion of the contracts the broker must ______. a. deposit the funds in a neutral escrow depository. b. deposit the funds in the broker’s trust account. c. deposit the funds in the broker’s personal account. d. ask another broker to hold the funds until the completion of the transaction.
4. For a trust fund with a number of beneficiaries, the aggregate trust fund liability at any point in time is _________. a. the total of the amounts originally contributed by each beneficiary. b. the amount each beneficiary originally contributed to the fund plus any interest earned. c. the amount due any individual beneficiary. d. the total of the balances due all the beneficiaries.
5. A trust fund account contains $6,000. There are four beneficiaries, each due an amount of $1,500. After beneficiary #1 receives a full distribution of his balance, what is the aggregate trust fund liability of the broker? a. $4,500 b. $6,000 c. $7,500 d. $1,500
6. A trust fund overage occurs when _________. a. there are more beneficiaries than are reflected in the broker’s records. b. there is more money in a trust fund account than is owed to the beneficiaries. c. there is an automated deposit to the trust account. d. the trust fund liability exceeds the account balance.
7. Which of the following is an example of commingling? a. A broker issues a check against the trust account to pay an office expense. b. A broker pays a bank service charge with his own money. c. A broker neglects to record a deposit to the trust account. d. A broker deposits rents from a broker-owned property into the broker’s trust account.
8. How long may a broker leave earned fees and commissions in the trust account without causing a commingling violation? a. 31 days b. 30 days c. 28 days d. 25 days
9. Under what circumstances is a broker required to file a report documenting the yearly number and volume of escrows conducted? a. The broker conducted any escrow transactions during the year. b. The broker conducted at least three escrow transactions during the year. c. The broker’s escrow activities amounted to at least $500,000 for the year. d. The broker conducted five escrow transactions during the year.
10. When does the time period for retaining transaction records begin? a. On the receipt of any document related to the transaction b. At the time any offer is presented c. At the completion of the transaction or from the signing of the listing if not completed d. At the time any transaction document is signed
11. To use an electronic system for the storage of trust account records, a broker must ensure that _____. a. the storage medium can be altered when an audit shows a discrepancy. b. the records cannot be viewed from the brokerage office. c. the original paper records on which the electronic files are properly disposed of. d. the record originates from a document that was created close to the time of the event reflected in the record
12. When does a broker have to pay the cost of an audit ordered by the commissioner? a. When the commissioner finds the broker guilty of a trust fund violation b. When an examination of the broker’s records shows an audit is needed c. When the Commissioner suspects the broker of commingling d. When the broker fails to produce a document requested by the auditor
13. What happens if an examination of a broker’s trust fund records shows a significant irregularity? a. The Commissioner immediately takes disciplinary action. b. The Commissioner orders an audit without further notice. c. The Commissioner gives 30-day notice of a pending audit. d. The broker’s license is immediately suspended.
14. In addition to other penalties, a licensee found guilty of improper handling of trust funds may be liable for ______. a. reimbursement to the Federal Deposit Insurance Corporation for the total amount insured. b. monetary restitution to the beneficiaries. c. criminal prosecution by the State of California for bank fraud. d. federal prosecution under the Glass-Stegall Act.
15. In general, trust fund conversion and other violations of the rules and regulations regarding the handling of trust funds can lead to __________. a. Loss of license b. Criminal sanctions c. Civil liability d. Any of the above
16. Earnest money belongs to who? a. The buyer until offer accepted b. The buyer and seller after offer becomes contract c. The seller at closing d. All of the above
17. Brokers must account for property received from clients because ____. a. providing service for clients is good business practice. b. clear accounting is necessary in all business transactions. c. otherwise they cannot calculate commissions accurately. d. they have a fiduciary duty to do so.
18. Trust funds include ____. a. deposit check made payable to the broker. b. rents received from broker-owned properties. c. operating funds for the brokerage firm. d. accumulated commissions from completed transactions.
19. In California, a ________ is considered a cash equivalent for a purchase deposit. a. promissory note b. bank deposit slip c. post-dated check d. presently-dated check
20. A broker is receiving an unlawful inducement to place trust funds in a certain bank if he or she accepts ______. a. the gift of a reduced fee for maintaining the trust account. b. booklet that explains good trust fund management. c. a checkbook cover worth $5.00. d. a $9.00 pen with the bank’s logo on it.
21. If a broker receives a deposit from a buyer and does not give it immediately to the principal or deposit it in a trust fund account, the broker must ______. a. turn it over to a bonded employee. b. place it in a neutral escrow depository. c. deposit it in the firm’s operating account. d. keep it in a locked drawer.
22. A broker is allowed to deposit a maximum of _____ into a trust account to pay account charges without committing commingling. a. $0 b. $100 c. $150 d. $200
23. The two types of trust fund accounting systems allowed in California are the _________. a. columnar and GAAP-compliant. b. row and column. c. journal and logbook. d. linear and geometric.
24. The “Record of All Trust Funds Received-Not Placed in Broker’s Trust Account” form is used to ______. a. track all trust funds received and paid out. b. track of the broker’s daily trust fund liability. c. track the balance of funds held by the broker without deposit in the trust account. d. track the balance of trust funds due to beneficiaries of the trust account.
25. A broker is required to keep records of undeposited checks received from a client unless __________. a. they represent advance payment for services to be rendered. b. they are made payable to service providers and total no more than $1,000. c. they are negotiable by the broker. d. they are intended as a refundable security deposit.
26. Which of the following defines trust funds? a. Funds belonging to someone other than the broker b. Any funds deposited in a trust fund account c. Cash belonging to a principal d. Things of value held by a broker on the part of another
27. When do the commissioner’s regulations apply to the handling of non-trust funds? a. When they become commingled with trust funds b. As soon as they are deposited in a firm’s business bank account c. When they are delivered in the form of a cash equivalent d. Whenever the funds used to purchase real estate
28. Promissory notes are regulations _________. a. not accepted as a cash equivalent in a California real estate transaction. b. universally accepted as a cash equivalent in California business transactions. c. the only acceptable form of money as a purchase deposit in a California real estate transaction. d. the equivalent of checks in California real estate transactions.
29. For a broker to hold a buyer’s check that is payable to the broker uncashed, ________. a. the seller must give the broker written permission to hold it while he or she considers the offer. b. the buyer must give the broker written instructions to hold it until the offer is accepted. c. the check must be a cashier’s check drawn on a local bank. d. the check must be for an amount less than $3,000.
30. A broker must have the seller’s written permission to ___________. a. place a buyer’s purchase deposit in a trust account rather than holding it uncashed. b. hold a buyer’s purchase deposit uncashed before acceptance of the offer. c. return a buyer’s purchase money deposit before acceptance of the offer. d. return any part of a buyer’s purchase money after acceptance of the offer.