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When Johnson Hardware Shop borrowed $20,000 from First Bank, it used its inventory as collateral for the loan. First Bank perfected its security interest by filing a financing statement. The inventory was subsequently damaged by fire, and Flanders Insurance Co. paid Johnson Hardware $5,000 for the loss, but First Bank claimed the proceeds of the insurance. Was First Bank correct? Why or why not?

When Johnson Hardware Shop borrowed $20,000 from First Bank, it used its inventory as collateral for the loan. First Bank perfected its security interest by filing a financing statement. The inventory was subsequently damaged by fire, and Flanders Insurance Co. paid Johnson Hardware $5,000 for the loss, but First Bank claimed the proceeds of the insurance. Was First Bank correct? Why or why not?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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When Johnson Hardware Shop borrowed $20,000 from First Bank, it used its inventory as collateral for the loan. First Bank perfected its security interest by filing a financing statement. The inventory was subsequently damaged by fire, and Flanders Insurance Co. paid Johnson Hardware $5,000 for the loss, but First Bank claimed the proceeds of the insurance. Was First Bank correct? Why or why not?
Transcribed Image Text:When Johnson Hardware Shop borrowed $20,000 from First Bank, it used its inventory as collateral for the loan. First Bank perfected its security interest by filing a financing statement. The inventory was subsequently damaged by fire, and Flanders Insurance Co. paid Johnson Hardware $5,000 for the loss, but First Bank claimed the proceeds of the insurance. Was First Bank correct? Why or why not?
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