How does Closet Storage Concepts handle advertising costs in its financial statements?
Closet_Storage_Concepts Franchise · 2025 FDDAnswer from 2025 FDD Document
obligations, therefore, the advances are classified as long‐term debt on the balance sheet. At December 31, 2024, there were no balances owed to the stockholder.
The Company's sole stockholder owns a separate entity that, in 2014, acquired substantially all of the assets and operations of a manufacturing entity that contractually supplies all of the "More Space Place" franchises. During the year, the Company made purchases from the entity in the amount of $23,355, which are included in materials and supplies in costs of sales. The entity also provided franchisee support in the amount of $60,000, and $627 of advertising, included in general and administrative expenses. Balances due to this entity at December 31, 2024, are $69,213, which are included in as due to affiliate on the balance sheet.
NOTE 5 RETIREMENT PLANS
The Company sponsors the Closet & Storage Concepts 401(K) Plan. The Plan covers all employees of age 21 with one year of service and 1,000 hours of service or more. The profit‐sharing feature is discretionary in nature. Retirement expense for the year ended December 31, 2024 was $22,535.
NOTE 6 LINE OF CREDIT
The Company currently has a line of credit with TD Bank in the amount of $200,000. Interest is payable at varying dates based on the bank's prime rate plus 0.49% (7.99% at December 31, 2024).
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2025 FDD)
According to Closet Storage Concepts' 2025 Franchise Disclosure Document, the company addresses advertising costs within its financial statements in a few ways. Specifically, advertising expenses can arise from transactions with a related entity, and the company also accounts for potential credit losses from franchisees related to advertising contributions.
In 2024, Closet Storage Concepts' sole stockholder owned a separate entity that provided $627 of advertising services. This amount was included in general and administrative expenses. This related-party transaction indicates that Closet Storage Concepts outsources some advertising functions and includes these costs in its general operational expenses.
Additionally, Closet Storage Concepts recognizes that it may not always collect the full amount of advertising contributions owed by franchisees. For the year ended December 31, 2024, the company recognized $52,587 in allowance for credit losses on receivables arising from franchise royalties and advertising contributions from franchisees. This suggests that a portion of advertising fees owed by franchisees may go uncollected, and Closet Storage Concepts accounts for these potential losses in its financial statements.