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Shawn P Adamo
Shawn P Adamo, Retired CPA
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Calculate the monthly finance charge for the credit card transaction.

Resolved Question:

Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded, and that the month is 30 days long. (Round your answers to the nearest cent.)
$400 balance, 14%, $50 payment
(a) previous balance method
$ 1

(b) adjusted balance method
$ 2

(c) average daily balance method
$ 3
Submitted: 5 months ago.
Category: Homework
Expert:  Shawn P Adamo replied 5 months ago.

Shawn P Adamo :

working on it

Shawn P Adamo :

PREVIOUS BALANCE METHOD: P=500 r=0..14 t=1/12 I=Prt =500*0.14*1/12

Shawn P Adamo :

The adjusted balance method of calculating your finance charge uses your previous balance less any payments and credits made during the billing cycle. New charges are not factored into the adjusted balance. The periodic rate is applied to the adjusted balance to calculate the finance charge.

APR = 14%

Periodic rate = 14/12=1.16

Days in billing cycle = 30

Previous balance = $500

Payment 10th day = $50

Charge 20th day = ?

Ending balance = $500

Adjusted balance = $

Finance charge = Adjusted balance * periodic rate

= 350 * 0.0116
= $5.60

Shawn P Adamo :

The daily balance method of calculating your finance charge uses the actual balance on each day of your billing cycle. The rate applied is 1/365th of your APR. This is your daily rate. Finance charges are calculated by summing each day’s balance multiplied by the daily rate.

APR = 14%

daily rate = .0004

days in billing cycle = 30

daily balance = $500

finance charge = (Day 1 balance * daily rate) + ... + (Day 30 balance * daily rate)

= (400*0.0004*10) + (350*0.0004*20)
= $1.60 + 2.80


=4.40

Shawn P Adamo :

please let me know if yiou jave any questions

Customer:

thank you!

Shawn P Adamo :

Sorry.

Shawn P Adamo, Retired CPA
Category: Homework
Satisfied Customers: 1270
Experience: Answering these question for decades.
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Expert:  Shawn P Adamo replied 5 months ago.
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