Are the articles of secondhand clothing offered for sale on ThredUp’s online store included in inventory on ThredUp’s balance sheet?

Clothes on hangers

ThredUp Inc. is a startup online consignment and thrift store. Customers can buy like-new, carefully vetted brand-name clothing from ThredUp’s online store at discounts of up to 90% off of the original retail prices. 

Customers can also send in their unwanted clothing articles for ThredUp to resell.  tThredUp’s professional buyers go through the articles of clothing sent in and assess the salability of those items.  ThredUp only accepts certain brand names of clothing, including brands like J. Crew, Gucci, Gap, and Nike. Items must also be in new or like-new condition.  When ThredUp accepts an article of clothing to list on its online store, the item is accepted on consignment and the payout to the original owner will occur once the item sells and a 14-day return window has passed. A consigned item can be reclaimed by the owner after it is listed on ThredUp’s website. If the item has not sold and has not been reclaimed by the original owner within a specified length of time, the item becomes the property of ThredUp.

If clothing articles sent in by potential sellers do not measure up to ThredUp’s standards, the items are returned to the original owner if he/she has indicated that he/she wants to have the items returned.  Otherwise, ThredUp will either sell the unaccepted items to third party sellers or pass them onto textile recyclers to be upcycled.

In addition to consignment goods that are sent in by the original owners for resale, ThredUp does purchase some items for its inventory. ThredUp’s inventory increased from $3.5 million to $9.8 million during its fiscal year ending December 31, 2021 (link). It uses the specific identification method for costing its inventory.

View a quick tutorial video about inventory basics at this link and then answer the following questions.

Note to instructors: This post is assignable in Pearson’s MyLab and has questions that are auto-graded.

Questions

  1. Assume that a Banana Republic women’s cardigan that originally cost $212 is sent into ThredUp.  This shirt is examined by a professional buyer for ThredUp, who determines that the item should be listed on ThredUp’s website at a selling price of $32.99 and that the original owner (the seller) will receive $4.19 for the item 14 days after it sells.  Once ThredUp accepts the Banana Republic cardigan, who owns it – ThredUp or the original owner? Should that Banana Republic cardigan be shown on ThredUp’s balance sheet? If so, at what dollar value?
  2. Now assume that an unrelated online consignment store, Resales4All Inc., inspects items sent to it and sends payment immediately to the sender if the item passes a rigorous inspection, without waiting for the item to sell. Dana Sterna sends a handbag to Resales4All that originally cost $200. After inspection, Resales4All accepts the handbag and sends payment of $20 to Sterna. Should the handbag be shown on Resales4All’s balance sheet? If so, at what dollar amount?

Copyright 2022 Wendy M. Tietz, LLC

About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

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