What is the impact of changes in accounting standards on 1 800 Packouts' reported assets?
1_800_Packouts Franchise · 2025 FDDAnswer from 2025 FDD Document
In relation to these acquisitions, the Company elected to early adopt Accounting Standards Update 2021-08, Business Combinations (ASU 2021-08). ASU 2021-08 allows a Company to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. Accordingly, the contract assets and contract liabilities were recognized at carryover value from the predecessor, rather than at fair value.
On January 1, 2022, the Company recognized $1,175,322 in operating lease liabilities and right-of-use (ROU) assets. The adoption of this guidance did not have a material impact on net loss.
During 2024,theCompany entered into a settlementagreementfor claimsmade underthe indemnity clause ofthe purchase agreement for the 2022 acquisition agreement of 1-800 Packouts, LLC (Packouts). The Company claimed they incurred losses due to alleged breaches of franchise-related representations and warranties by the former owner of Packouts and member of the Company. In March 2024, both parties entered into a settlement agreement to resolve these claims. Under the terms of the agreement, the Company received a total settlement of $10,000,000. The settlement stipulated that the Company would repurchase the former owner's membership interest in the Company in exchange for a reduction of the legal settlement receivable at an agreed value of $4,230,000. The remaining settlement amount would be received as periodic cash payments.
The Company determined that since this settlement was related to the acquisition of Packouts, the settlement of amount would be treated as a reduction in the related purchase price and the acquired assets.
Source: Item 23 — RECEIPT (FDD pages 67–238)
What This Means (2025 FDD)
According to 1 800 Packouts' 2025 Franchise Disclosure Document, the company adopted Accounting Standards Update (ASU) 2021-08, Business Combinations, early. This update allows 1 800 Packouts to recognize and measure contract assets and liabilities in accordance with ASC 606, Revenue from Contracts with Customers. As a result, contract assets and liabilities were recognized at carryover value from the predecessor rather than at fair value.
Additionally, on January 1, 2022, 1 800 Packouts recognized $1,175,322 in operating lease liabilities and right-of-use (ROU) assets due to the adoption of ASU No. 2016-02, Leases (ASC Topic 842). This guidance replaces prior lease accounting guidance and requires lessees to recognize lease assets and liabilities for substantially all leases. The adoption of this guidance did not have a material impact on net loss.
In 2024, 1 800 Packouts entered into a settlement agreement related to the 2022 acquisition of 1-800 Packouts, LLC (Packouts). The company received a total settlement of $10,000,000 due to alleged breaches of franchise-related representations and warranties by the former owner. As part of the settlement, $4,230,000 was used to repurchase the former owner's membership interest, and the remaining amount was received as cash payments. The company treated this settlement as a reduction in the purchase price and the acquired assets.