On the May 1 billing date, Mary had a balance due of $970.60 on her credit card. The transactions during the following month were:
May 5 Payment $400.00
May 10 Charge: airline tickets $381.00
May 22 Charge: hotel $270.60
May 25 Charge: florist $60.20
The interest rate on the card is 1.2% per month. Using the average daily balance method, find the finance charge and balance due on June 1.
Using the Table format
1 2 3 4 5 6
DATE CHARGE PAYMENT BAL. #.OF DAYS BAL*
BALANCE # of
DOES NOT Days
CHANGE
Totals :
To find the finance charge and balance due on June 1 using the average daily balance method, we need to calculate the average daily balance for each transaction and the number of days each balance was held.
1. Calculate the number of days between each transaction:
- May 1 to May 5: 4 days
- May 5 to May 10: 5 days
- May 10 to May 22: 12 days
- May 22 to May 25: 3 days
- May 25 to June 1: 7 days
2. Calculate the balance for each period:
- May 1 to May 5: $970.60
- May 5 to May 10: $570.60 ($970.60 - $400.00)
- May 10 to May 22: $951.60 ($570.60 + $381.00)
- May 22 to May 25: $1,221.20 ($951.60 + $270.60)
- May 25 to June 1: $1,119.00 ($1,221.20 - $60.20)
3. Calculate the average daily balance and the number of days for each period:
Period | Average Daily Balance | Number of Days
------------------------------------------------
May 1-5 | $970.60 | 4 days
May 5-10| $570.60 | 5 days
May 10-22| $951.60 | 12 days
May 22-25| $1,221.20 | 3 days
May 25-Jun 1| $1,119.00 | 7 days
4. Calculate the finance charge for each period:
- May 1-5: $970.60 * 1.2% * 4/30 = $5.13
- May 5-10: $570.60 * 1.2% * 5/30 = $4.76
- May 10-22: $951.60 * 1.2% * 12/30 = $4.78
- May 22-25: $1,221.20 * 1.2% * 3/30 = $1.22
- May 25-Jun 1: $1,119.00 * 1.2% * 7/30 = $2.56
5. Calculate the total finance charge:
Total Finance Charge = $5.13 + $4.76 + $4.78 + $1.22 + $2.56 = $18.45
6. Calculate the balance due on June 1:
Balance due on June 1 = Balance on May 1 + Total Charges - Total Payments + Finance Charge
Balance due on June 1 = $970.60 + $711.80 ($381.00 + $270.60 + $60.20) - $400.00 + $18.45 = $1,511.85
Therefore, the finance charge on June 1 is $18.45 and the balance due on June 1 is $1,511.85.