Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Summary of Significant Accounting Policies

(a) Recently Adopted Accounting Pronouncements

On January 1, 2020, we prospectively adopted FASB ("ASU 2018-15") Intangibles - Goodwill and Other - Internal-Use Software (ASC 350-40), Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 provides guidance on accounting for fees paid when the arrangement includes a software license and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs to develop or obtain internal-use software. The adoption of this guidance did not have a material impact on our consolidated financial statements.

On January 1, 2020, we adopted FASB (“ASU 2016-13”) Financial Instruments - Credit Losses (Topic 326) using the modified retrospective approach. ASU 2016-13 requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Entities should use forward-looking information to better form their credit loss estimates.

We are exposed to credit losses primarily through sales of annual membership subscriptions and membership upgrades and home sales. We have developed an allowance for credit losses, which represents an estimate of expected losses over the remaining contractual life of our receivables. The estimate is a result of our ongoing assessments and evaluations of

collectability including historical loss experience, current market conditions and future expectations in forecasting credit losses in each of our receivable portfolios. We recognized a cumulative-effect adjustment of $3.9 million, which decreased opening retained earnings as of January 1, 2020.

The cumulative-effect adjustment resulting from the adoption of ASU 2016-13 as of January 1, 2020 was as follows:


Balance net of allowance	Balance Sheet Location	Balance at December 31, 2019		Adjustment due to ASU 2016-13 Adoption		Balance at January 1, 2020		Balance at September 30, 2020
(amounts in thousands)
Annual membership subscriptions	Other assets, net	$	2,394	$	(1,361)	$	1,033	$	1,649
Membership upgrades	Notes receivable, net	$	25,236	$	(2,514)	$	22,722	$	25,123

(b) Revenue Recognition

Rental income is accounted for in accordance with the ASC 842, Leases, and is recognized over the term of the respective lease or the length of a customer's stay. Utility recoveries are presented within Rental income on the Consolidated Statements of Income and Comprehensive Income. The allowance for credit losses related to the collectability of lease receivables is presented as a reduction to Rental Income. Lease receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. The estimate for credit losses is a result of our ongoing assessments and evaluations of collectibility including historical loss experience, current market conditions and future expectations in forecasting credit losses. See Note 3. Leases for additional information.

Annual membership subscriptions and membership upgrade sales are accounted for in accordance with ASC 606, Revenue from Contracts with Customers. Membership subscriptions provide our customers access to specific Properties for limited stays at a specified group of Properties. Payments are deferred and recognized on a straight-line basis over the one-year period during which access to Sites at certain Properties is provided. Membership subscription receivables are presented within Other assets, net on the Consolidated Balance Sheets and are net of an allowance for credit losses. Membership upgrades grant certain additional access rights to the customer and require non-refundable upfront payments. The non-refundable upfront payments are recognized on a straight-line basis over 20 years. Financed upgrade sales (also known as contract receivables) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses.

Income from home sales is recognized when the earnings process is complete. The earnings process is complete when the home has been delivered, the purchaser has accepted the home and title has transferred. We have a limited program under which we purchase loans made by an unaffiliated lender to homebuyers at our Properties. Financed home sales (also known as chattel loans) are presented within Notes receivable, net on the Consolidated Balance Sheets and are net of an allowance for credit losses.

As of September 30, 2020 and December 31, 2019, restricted cash consists of $25.9 million and $25.1 million, respectively, primarily related to cash reserved for customer deposits and escrows for insurance and real estate taxes.