How is lease expense for operating leases recognized by 360 Painting?

According to 360 Painting's 2025 Franchise Disclosure Document, lease expenses for operating leases are recognized on a straight-line basis over the lease term. This means that the total lease expense is divided evenly over the entire period of the lease, regardless of when the payments are actually made. Variable lease payments, if any, are recognized in the period when the obligation to make those payments is incurred. Lease incentives received prior to lease commencement are recorded as a reduction in the right-to-use asset. Fixed lease incentives received after lease commencement reduce both the lease liability and the right-of-use asset.

For a prospective 360 Painting franchisee, this means that the monthly lease expense will be the same each month, making it easier to budget and forecast expenses. However, it also means that the franchisee will not be able to deduct the full amount of the lease payment in the early years of the lease, which could have tax implications.

This accounting treatment is in line with standard accounting practices under ASC 842, which aims to provide a more accurate representation of a company's lease obligations on its balance sheet. Franchisees should consult with a financial advisor to understand the full implications of this accounting treatment on their specific financial situation.