What was the effect of the restatement on Cd One Price Cleaners' total current liabilities for 2022?
Cd_One_Price_Cleaners Franchise · 2025 FDDAnswer from 2025 FDD Document
restated its results for 2022 to record accrued interest expense on the installment notes payable with the United States Small Business Administration. The effect on the December 30, 2022 financial statements is summarized in the following table:
| As Previously Reported | Correction of Errors | As Restated | |||
|---|---|---|---|---|---|
| Balance Sheet: | |||||
| Liabilities: | |||||
| Accrued interest | $ - | $ 83,835 | $ | 83,835 | |
| Total current liabilities | 1,110,265 | 83,835 | 1,194,100 | ||
| Loans payable | 1,999,900 | 100 | 2,000,000 | ||
| Total long-term liabilities | 1,999,900 | 100 | 2,000,000 | ||
| Total liabilities | 3,110,165 | 83,935 | 3,194,100 | ||
| Members' equity (deficit) | (258,335) | (83,935) | (342,270) | ||
| Statement of Income: | |||||
| Expenses: | |||||
| Loan payable interest expense | 53 | 83,835 | 83,888 | ||
| Miscellaneous | 19,684 | 100 | 19,784 | ||
| Total expenses | 2,415,815 | 83,935 | 2,499,750 | ||
| Net income | 355,819 | (83,935) | 271,984 |
Source: Item 22 — Contracts (FDD page 72)
What This Means (2025 FDD)
According to Cd One Price Cleaners' 2025 Franchise Disclosure Document, the restatement of the company's balance sheet for 2022 increased the total current liabilities by $83,835. The total current liabilities as previously reported were $1,110,265. After the correction of errors, which amounted to $83,835, the restated total current liabilities were $1,194,100. This change is also reflected in the accrued interest line item, which was initially reported as $0 but restated to $83,835.
This restatement indicates a significant adjustment to Cd One Price Cleaners' financial statements, specifically impacting its short-term obligations. The increase in accrued interest suggests that the company initially underreported its interest expenses, which subsequently affected the total current liabilities. For a prospective franchisee, this highlights the importance of carefully reviewing the franchisor's audited financial statements and understanding the reasons behind any restatements.
The correction of errors also had a ripple effect on other parts of the financial statements. The total liabilities increased from $3,110,165 to $3,194,100, and the members' equity (deficit) decreased from ($258,335) to ($342,270). Additionally, the restatement impacted the statement of income, where the loan payable interest expense increased from $53 to $83,888, and the net income decreased from $355,819 to $271,984. These changes demonstrate the interconnectedness of financial statement items and the potential impact of accounting errors on the overall financial picture of Cd One Price Cleaners.
Prospective franchisees should seek clarification from Cd One Price Cleaners regarding the nature of the errors that led to the restatement and the measures taken to prevent similar issues in the future. Understanding the franchisor's accounting practices and internal controls is crucial for making an informed investment decision. Consulting with a financial advisor or accountant to review the FDD and financial statements can provide additional insights and help assess the financial stability of the franchise system.