What estimates and assumptions does Checkersrallys' management make regarding lease agreements as required by ASC 842, *Leases*?

According to Checkersrallys' 2025 Franchise Disclosure Document, management is required to make certain estimates and assumptions regarding each new lease and sublease agreement, renewal, and amendment as required by ASC 842, Leases. These estimates and assumptions include, but are not limited to, property values, property lives, discount rates, and the lease term. These factors impact the classification and accounting for a lease or sublease as operating or finance for leases where Checkersrallys is a lessee, and as operating, sale-type, and direct financing for leases where Checkersrallys is a lessor.

The estimates and assumptions Checkersrallys makes directly affect the financial statements. If different estimates and assumptions were used, the amounts of depreciation and amortization, interest, and rent expense and income reported would vary. This means that the financial performance of Checkersrallys, as reflected in its financial statements, is subject to the accuracy and reliability of these estimates.

For a prospective Checkersrallys franchisee, this highlights the importance of understanding the assumptions and estimates used in lease accounting, as they can significantly impact the reported financial results. It also emphasizes the need for Checkersrallys to have robust processes and controls in place to ensure the reasonableness and accuracy of these estimates. Franchisees should consider inquiring about the specific methodologies and assumptions used by Checkersrallys in accounting for leases to better assess the financial implications for their own operations.