Do the Crave Cookies financial statements include any off-balance sheet financing?
Crave_Cookies Franchise · 2025 FDDAnswer from 2025 FDD Document
ies, beginning of year | $ 654,671 | $ 330,419 | | Contract liabilities, end of year | $ 1,279,141 | $ 654,671 |
Note 3. Operating Leases - ASC 842
Accounting Policies
The Company determines if an arrangement is a lease or contains a lease at inception. Leases result in the recognition of ROU assets and lease liabilities on the balance sheets. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. The Company determines lease classification as operating or finance at the lease commencement date.
Crave Cookies Franchising, LLC Notes to Financial Statements December 31, 2023 and 2022
At lease commencement, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. The Company has made a policy election to use a risk-free rate (the rate of a zero-coupon U.S. Treasury instrument) for the initial and subsequent measurement of all lease liabilities. The risk-free rate is determined using a period comparable with the lease term.
The lease term may include options to extend or to terminate the lease that the Company is reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term.
The Company has elected not to record leases with an initial term of 12 months or less on the balance sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term.
Nature of Leases
The Company has entered into the following lease arrangements:
Operating Leases
The Company leased a vehicle that expired in 2023 and had monthly payments of $674.
In 2023, the Company entered into a new vehicle lease that expires in 2025 and has monthly payments of $576. Termination of the lease is generally prohibited unless there is a violation under the lease agreement.
All Leases
The Company has no material related-party leases.
The
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies's 2025 Franchise Disclosure Document, the company utilizes operating leases, which, under accounting standards, require the recognition of right-of-use (ROU) assets and lease liabilities on the balance sheets. This means Crave Cookies recognizes its lease obligations and the corresponding right to use the leased assets (such as vehicles) directly on its balance sheet.
The FDD specifies that Crave Cookies determines if an arrangement is a lease at its inception. For leases exceeding 12 months, Crave Cookies records ROU assets and lease liabilities, representing the right to use an asset and the obligation to make lease payments, respectively. These are measured on a discounted basis. The company uses a risk-free rate, based on U.S. Treasury instruments, for measuring lease liabilities. Lease expenses are generally recognized on a straight-line basis over the lease term.
However, Crave Cookies has elected not to record leases with an initial term of 12 months or less on the balance sheets, recognizing the lease expense for these short-term leases on a straight-line basis over the lease term. In 2023, the company had a vehicle lease that expired and had monthly payments of $674. Also in 2023, Crave Cookies entered into a new vehicle lease that expires in 2025 with monthly payments of $576. The company's lease agreement does not contain any material residual value guarantee or material restrictive covenants.
Given these accounting practices, a prospective Crave Cookies franchisee should understand how lease obligations are accounted for, particularly the distinction between short-term and longer-term leases, as this impacts the company's reported financial position. While the company does utilize leases, they are recorded on the balance sheet according to accounting standards, except for those with a term of 12 months or less. This provides transparency regarding Crave Cookies's financial commitments related to leased assets.