Luke loaned Dee $10,000 so that Dee could purchase a herd of sheep. Dee signed a security agreement granting Luke a security interest in the herd of sheep, and Luke perfected that security interest by filing a financing statement covering the sheep.
Dee later decided to give up her dream of being a shepherd and, without Luke's knowledge or permission, sold the sheep to Gilbert for $9,000. Dee took the $9,000, deposited it in her checking account with $5,000 in unrelated money (making the total $14,000). She then made the following purchases out of her checking account.
She subsequently defaulted on her payments to Luke.
Which statement correctly describes everything in which Luke has a security interest?
1. The sheep, the tractor, the horse, the pool table and the $2,000 remaining in the bank.
2. The sheep, the pool table, the baseball card collection, and the $2,000 remaining in the bank.
3. The sheep and all of the items Dee purchased with funds from her checking account.
4. Only the sheep; because Luke could still repossess the sheep as collateral, he does not have a right to the proceeds Dee received when she sold the sheep.