What was the impact on Kidokinetics' retained earnings due to the adoption of ASC 842, *Leases*?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
1
(i) Leasing
The Company adopted ASC 842, Leases, as of January 1, 2022, using the modified retrospective method. The Company has an operating lease for office space from a related party, which required adjustments to record the right-of-use asset and lease liability as of the date of implementation. Upon adoption, the Company recorded a right-of-use asset and lease liability of $134,828 and $135,843, respectively. The net effect on the Company's retained earnings was a decrease of $1,015. The lease liability reflects the present value of the Company's estimated future minimum lease payments over the lease term, discounted using a collateralized incremental borrowing rate. The impact of ASC 842 is non-cash in nature and does not affect the Co
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics' 2024 Franchise Disclosure Document, the company adopted ASC 842, Leases, as of January 1, 2022, using the modified retrospective method. This accounting standard relates to how leases are accounted for in financial statements. Kidokinetics had an operating lease for office space from a related party, which necessitated adjustments to record the right-of-use asset and lease liability upon implementation.
Upon adopting ASC 842, Kidokinetics recorded a right-of-use asset of $134,828 and a lease liability of $135,843. The net effect of these adjustments on the company's retained earnings was a decrease of $1,015. This decrease reflects the initial impact of recognizing the lease on the balance sheet according to the new accounting standard.
The lease liability represents the present value of Kidokinetics' estimated future minimum lease payments over the lease term, discounted using a collateralized incremental borrowing rate. It's important to note that the impact of ASC 842 is non-cash in nature, meaning it does not affect the company's cash flows. This adjustment primarily affects the balance sheet presentation of Kidokinetics' financial position, providing a more transparent view of its lease obligations. For a prospective franchisee, this indicates how Kidokinetics accounts for its leases and the potential impact of lease accounting standards on its financial statements.