What is the Employee Retention Credit (ERC) as it pertains to Bens Soft Pretzels?
Bens_Soft_Pretzels Franchise · 2025 FDDAnswer from 2025 FDD Document
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NOTE 11 – COMMITMENTS
The Company has a month-to-month agreement with its law firm for services rendered.
NOTE 12 – EMPLOYEE RETENTION CREDIT
The Employee Retention Credit (ERC) was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020. It provided a per employee credit to eligible businesses based on a percentage of qualified wages and health insurance benefits paid for employees during the period of March 15, 2020, through September 30, 2021, in an effort to help businesses retain their workforce and avoid layoffs. It is a refundable payroll tax credit that could be claimed quarterly if certain criteria were met. If the Company is audited and it is determined that the Company was not eligible to claim these funds, then the Company will be required to pay back the funds received plus interest.
The Company met the required criteria for ERC in 2021 and filed the necessary amended payroll tax returns in order to receive ERC funds. The Company decided to account for these funds under FASB ASC 958-605 as a conditional grant. In accordance with ASC 958-605, grant income is recognized as the conditions of release have been substantially met. Management determined that filing the amended payroll tax returns substantially met the conditions of release and therefore, recognized the full amount grant proceeds claimed as income in the statement of income and retained earnings in 2021. However, $6,027 of ERC funds were not received until 2022.
The receipt of these funds in 2022 did not impact the statement of income and retained earnings in 2022 since the revenue was fully recognized in 2021. However, the balance sheet and statement of cash flows for the year ended December 31, 2022 were impacted by the receipt of these funds. The balance sheet reported a reduction in receivables. The statement of cash flows reported an offset to the decrease in accounts receivable which negated the impact on cash fl
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, the Employee Retention Credit (ERC) is explained within the financial statements of Bens Soft Pretzels. The ERC was established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to provide eligible businesses with a per-employee credit based on a percentage of qualified wages and health insurance benefits paid between March 15, 2020, and September 30, 2021. This credit aimed to help businesses retain employees and avoid layoffs during the pandemic. It was a refundable payroll tax credit that could be claimed quarterly if specific criteria were met.
Bens Soft Pretzels met the criteria for ERC in 2021 and filed amended payroll tax returns to receive these funds. The company accounted for these funds as a conditional grant under FASB ASC 958-605, recognizing the full amount of grant proceeds as income in 2021 because they determined that filing the amended payroll tax returns substantially met the conditions of release. However, $6,027 of ERC funds were not received until 2022.
The receipt of the $6,027 in 2022 did not impact the statement of income and retained earnings for that year since the revenue was fully recognized in 2021. However, the balance sheet and statement of cash flows for 2022 were affected. The balance sheet reported a reduction in receivables, while the statement of cash flows reported an offset to the decrease in accounts receivable, negating the impact on cash flows from operating activities. Additionally, the statement of cash flows reported an increase in financing activities for the amount of ERC funds received in 2022. It's important to note that if Bens Soft Pretzels is audited and found ineligible to claim these funds, the company would be required to repay the funds plus interest.