After reviewing the entire case, re-case Zodiak's 2017 income statement and balance sheet to conform to generally accepted accounting principles. Then compose an executive summary addressing the issues in your calculations and comment on the firm's 2017 financial performance and its financial position as of December 31, 2017.

Note: Ignore income taxes for this case.

You led a group of investors in purchasing Zodiak, Inc. from its founder and namesake at the beginning of 2013. You financed the $40 million acquisition of this manufacturer of quality industrial components with equal amounts of equity and debt capital. Your invest- ment team provided the majority of owner financing, and other investors purchased stock to supplement your group's equity infusion. A $20 million, 6% loan from the First National Bank financed the remainder of the purchase.

You resigned as chief executive officer (CEO) after the firm's fourth fiscal year, which ended on December 31, 2016, in order to pursue other business opportunities. You continued in your capacity as chair of Zodiak's Board of Directors (BOD). The BOD elected Johannes Skilling as CEO, effective January 1, 2017, over your objections. Mr. Skilling had a proven record of accomplishment as an executive and demonstrated strong interpersonal skill during the search process; yet, you had an uneasy feeling about him. Specifically, you felt that Skilling took too many unnecessary risks and pushed the envelope too far with overly aggressive financial reporting practices. Although Mr. Skilling was thoroughly vetted, you had "off the record" conversations with trusted busi- ness colleagues who echoed your concerns. None was willing, however, to speak on the record. In the end, you acquiesced to the unanimous wish of the rest of the board and ratified the hiring of Mr. Skilling as CEO effective January 1, 2017.

Financial Statements

Zodiak's financial performance during your tenure as CEO was solid, if not spectacular. Corporate profitability ostensibly soared under Skilling's tutelage in 2017. The accompanying spreadsheet contains the annual income statements for the last three fiscal years, as well as the last two period's balance sheets. The financial data clearly evidence the superior results Zodiak achieved in 2017, which was the first year that Skilling served as CEO. (This problem ignores income taxes.)

Income Statements For the Years Ended December 31 (in 0005) 2017 2016 2015 $ 30,100 | Sales revenues Cost of goods sold Gross prot Selling, general, and administrative expenses Depreciation expense Research and development expense Operating income Interest expense Net income Balance Sheets December 31 Assets 2017 2016 Cash $ 5,728 $ 2,123 Accounts receivable 7,047 6,282 Inventory 5,812 4,531 Other current assets 1,649 134 Current assets 20,236 13,070 Property, plant, and equipment, net of depreciation 33,067 34,737 Total Assets $ 53,303 $47,807 liabilities and Shareholders' Equity Accounts payable $ 4,253 $ 3,402 Accrued liabilities 889 846 Current liabilities 5,142 4,248 Notes payable 20,000 20,000 Total Liabilities 25,142 24,248 Common stock 20,000 20,000 Retained earnings m 3,559 Total shareholders' equity 28,161 23,559 Total Liabilities and Shareholders' Equity 3 53,303 $ 47,807 Case 2-1 Spreadsheet Template -- Zodiak, Inc. Income Statements For the Years Ended December 31 [in thousands} Sales revenues Cost of goods sold Gross profit Selling, general, and administrative expenses Depreciation expense Research and development expense Operating income Interest expense Net income Balance Sheets December 31 [in thousands} Assets Cash Accounts receivable Inventory Other current assets Current assets Property, plant, and equipment Total Assets Liabilities Accounts payable Accrued liabilities Current liabilities N otes payable Total Liabilites Shareholders' guy Common stock Retained earnings Total shareholders' equty Total Liabilities and Shareholders' Equity As Recast 2017 As Recast 2017 Adjustments Adjustments 2017 2015 $ 35,735 $ 31,905 15,241 13,503 20,494 13,293 9,270 3,427 545 540 550 755 9,919 3,475 1,200 1,200 $ 3,719 $ 7,275 As Presented 2017 2015 $ 5,723 $ 2,123 7,047 5,232 5,312 4,531 1,549 134 20,235 13,070 33,057 34,737 $ 53,303 $ 47,307 5 4,253 5 3,402 339 345 5,142 4,243 20,000 20,000 25,142 24,243 20,000 20,000 3,151 3,559 23,151 23,559 $ 53,303 $ 47,807 3 $ Statements as Originally Presented 2015 30,100 12,340 17,250 3,025 525 700 7,910 1,200 5,710