1. Finance Charge: Unpaid Balance Method pp. 261-263 7-2 SECTION

2. Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 2 of 15 7-2 unpaid-balance method (p. 261) Computing the finance charge on a credit account based on the portion of the previous balance that has not been paid. Key Words to Know

3. Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 3 of 15 7-2 Unpaid Balance = Previous Balance – (Payments + Credits) Finance Charge = Unpaid Balance × Periodic Rate New Balance = Unpaid Balance + Finance Charge + New Purchases Formula

4. Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 4 of 15 7-2 A portion of Lucille Sherman’s charge account statement is shown in Figure 7.3 below. The monthly finance charge is 1.5 percent of the unpaid balance. What is the new account balance? Example 1

5. Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 5 of 15 7-2 Figure 7.3

6. Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 6 of 15 7-2 Find the unpaid balance. Previous Balance – (Payments + Credits) $132.40 – $40.00 = $92.40 Example 1 Answer: Step 1

7. Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 7 of 15 7-2 Find the finance charge. Unpaid Balance × Periodic Rate $92.40 × 1.5% = $1.386 or $1.39 Example 1 Answer: Step 2

8. Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 8 of 15 7-2 Find the new balance. Unpaid Balance + Finance Charge + New Purchases $92.40 + $1.39 + $79.55 = $173.34 Example 1 Answer: Step 3

9. Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 9 of 15 7-2 Ali Martinez has a charge account which uses the unpaid-balance method of computing finance charges. The periodic rate is 1.85 percent. If his previous balance is $478.68 and he had payments and credits of $250.00, find his unpaid balance and finance charge. If he has new purchases of $38.50, find his new balance. Example 2

10. Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 7-2, Slide 10 of 15 7-2 Step: Find the new balance. Unpaid balance = $478.68 – $250.00 = $228.68 Finance charge = $228.68 × 1.85% = $4.23058 or $4.23 New balance = $228.68 + $4.23 + $38.50 = $271.41 Example 2 Answer

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