Read the article, Cheesecake Factory says its not paying rent If you are the management accountant at

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Question:

Read the article, “Cheesecake Factory says it’s not paying rent…” If you are the management accountant at Cheesecake factory, which budget in the master budget would you need to adjust to implement the changes indicated in the article? Would you need to increase or decrease the budget? A brief explanation is most helpful.

1. Withholding rent payment.

Budget:

Increase/decrease/no effect:

Explanation:

2. Furloughing 41,000 employees. Assume employees are production workers.

Budget:

Increase/decrease/no effect:

Explanation:

3. Employees retaining benefits and insurance.

Budget:

Increase/decrease/no effect:

Explanation

4. Executives and board will receive a pay cut.

Budget:

Increase/decrease/no effect:

Explanation

5. Drawing down on credit (borrowing money from bank)

Budget:

Increase/decrease/no effect:

Explanation

Cheesecake Factory says it’s not paying rent in April, has furloughed thousands of employees

By Tonya Garcia

Cheesecake Factory Inc. is doing what a lot of tenants would like to do come April 1: withholding their rent.

The restaurant chain said that the “unprecedented times” we are living in has prompted it to take a closer look at its economic situation.

“[T]here are many factors that are changing on a daily basis given governmental regulations and landlord decisions to close properties,” said Matthew Clark, chief financial officer of Cheesecake Factory CAKE, -6.56%, in a statement. “We have to take both into consideration in terms of understanding the nature of our rent obligations and with respect to managing our financial position.”

The company has also furloughed 41,000 employees. These staff members will receive a daily free meal and retain benefits and insurance until June 1. Executives and the board will also see a pay cut.

Cheesecake Factory said Monday that it was drawing down $90 million of its revolving credit facility, and 27 of its restaurants, including two namesake locations, are closed.

Cheesecake Factory’s portfolio includes North Italia and restaurants included under the Fox Restaurant Concepts subsidiary. The company operates 294 restaurants across the U.S. and Canada, and has 26 Cheesecake Factory locations operating internationally under licensing agreements.

Cheesecake Factory stock was up 4.2% in Thursday trading, and has sunk 58.3% over the past year. The S&P 500 index SPX, -1.78% is down 6.3% for the period.

“We have very strong, longstanding relationships with our landlords,” said Cheesecake Factory’s Clark. “We are certain that with their partnership, we will be able to work together to weather this storm in the appropriate manner.”

A number of chains, including Olive Garden parent Darden Restaurants Inc. DRI, -7.13% and Wendy’s Co. WEN, -3.82% have also drawn down on a portion or all of their credit as dining rooms close and restaurants turn to delivery and takeout.

Still, a Coresight Research poll finds that restaurants, bars and coffee shops are the second most avoided places amid the coronavirus outbreak. (Movie theaters are No. 1)

UBS analysts say that a discussion with a large restaurant franchisee found that casual dining sales are down 70% to 80%, even though off-premise dining is up 50% to 100%.

“For casual dining, a continued down ~70-to-80% sales environment would provide insufficient cash flow to be viable for more than one-to-two months,” the report said.

https://www.marketwatch.com/story/cheesecake-factory-says-its-not-paying-rent-in-april-due-to-unprecedented-times-2020-03-26