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The Ethicality of Excello Telecommunications
Cody S. Smith
ETH/376
April 22, 2013
Ding Hardin

The Ethicality of Excello Telecommunications
Excello Telecommunications has been a profitable company for many years, but recently the competitive landscape has become tougher. Competition from overseas manufacturers has lowered Excello’s market share and profits. For the first time it looks as is Excello will not meet earnings estimates. This information directly impacts bonuses, stock options, and the company’s share price. Top level management is concerned about the extent this impact will have on the company. This paper will serve to determine the ethicality of Excello’s actions and demonstrate what ethical standards and regulations are acceptable under GAAP.
Possible Solution and Dilemma
Terry Reed, the chief financial officer, uncovered a transaction on December 20, 2010 that might solve the problem. Excello sold $1.2 million of equipment to Data Equipment Systems. Typically this type of transaction would be recorded as a sale on the date of shipment. However, Data Systems has requested that the equipment not be delivered until January 11, 2011, because Data Systems did not have the warehouse availability for the product.
Ethical Standards and GAAP Excello is faced with a serious problem. The company must record this revenue for the period ending 2010, but the transaction is not set to complete until 2011. The first issue that must be detailed is how and when revenue can be recognized. Under GAAP this is called the revenue recognition principle. This principle states that revenue can be recorded only when it is realizable, generally when the product or service has been delivered or performed, regardless of when the cash is received. Even though Data Equipment has paid for the product, Excello cannot record this as revenue until the product is delivered;

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