Question

A percentage lease calls for a minimum rent of $1,200 per month plus additional annual rent of 4 percent of the year's gross business exceeding $150,000. If the business generated $270,000, how much annual rent does the tenant owe?

A) $14,400
B) $25,200
C) $10,800
D) $19,200

Answer 1

The annual rent owed by the tenant under the percentage lease agreement, given the business grossing $270,000, is $19,200. This includes the minimum annual rent plus additional rent calculated as 4% of the business's gross amount over $150,000.

Step-by-step explanation:

To calculate the annual rent the tenant owes for a percentage lease, we have to determine the portion of the gross business that exceeds $150,000 and calculate 4% of that excess amount. In this case:

• Total annual gross business: $270,000
• Gross business over $150,000: $270,000 - $150,000 = $120,000
• 4% of $120,000: 0.04 * $120,000 = $4,800

This $4,800 is the additional annual rent due to the percentage agreement on top of the minimum rent. Since the minimum rent is $1,200 per month, for 12 months the total minimum rent is:

• Minimum rent per year: $1,200 * 12 = $14,400

The total annual rent is the sum of the minimum rent plus the percentage rent:

• Total annual rent = Minimum rent + Percentage rent = $14,400 + $4,800 = $19,200

Therefore, the tenant owes $19,200 in annual rent.

Answer 2

If a percentage lease calls for a minimum rent of $1,200 per month plus additional annual rent of 4 percent of the year's gross business exceeding $150,000, with a business generating $270,000, then the tenant owes annual rent of D) $19,200.

Step-by-step explanation:

The formula for calculating the additional annual rent in a percentage lease is: (Gross Business - Threshold) × Percentage Rate.

Given:

Minimum rent = $1,200 per month = $1,200 × 12 = $14,400 annually

Threshold = $150,000

Percentage rate = 4%

Gross business = $270,000

The excess gross business over the threshold is:

$270,000 - $150,000 = $120,000.

Additional annual rent = $120,000 × 4% = $4,800.

Therefore, the total annual rent owed is the sum of the minimum rent and the additional annual rent: $14,400 + $4,800 = $19,200. Hence, the correct answer is D) $19,200.