When calculating lease liabilities at the time of adoption, what did Stretch Zone utilize to determine the noncancellable portion of the lease term?

According to Stretch Zone's 2025 Franchise Disclosure Document, when calculating lease liabilities at the time of adoption of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 842, Leases, Stretch Zone utilized historical experience to determine the noncancellable portion of the lease term. Additionally, Stretch Zone elected to use the risk-free rate as the discount rate. The company adopted the standard using the Effective Date Method and recognized and measured lease assets and liabilities existing at January 1, 2022.

This means that Stretch Zone, in assessing its lease obligations, looked back at its past leasing history to project how likely it was to continue a lease beyond its initial term. This would involve analyzing factors such as renewal rates, historical lease modifications, and any implicit or explicit options to extend the lease. By using its own historical data, Stretch Zone aimed to make a reasonable estimate of the lease term for accounting purposes.

For a prospective franchisee, this accounting practice highlights the importance of understanding the terms of their lease agreement and the potential long-term financial commitments involved. While Stretch Zone's historical experience informs its own accounting, a franchisee needs to carefully evaluate their own specific lease terms, renewal options, and potential exit strategies to accurately assess their financial obligations. Franchisees should consult with financial professionals to fully understand the implications of lease accounting standards on their business.