Lilly Company Master Budget Practice Problem (includes Taxes) Lilly Company expects its Sales in January to be S 120,000 and expects Sales to grow by 10% 1. 2. 3. each month. All sales are on credit and it collects 60% ofall sales in the month of the sale, the remaining 40% in the month after the sale. The cost of goods sold is equal to 70% of sales. Lilly Company likes to keep an ending inventory equal to 20% of next months cost of goods 4, sold on hand. All purchases of inventory are on account, and the company pays for 80% of all purchases in the month of the purchase, 20% in the month after the purchase. The company pays its sales force a commission equal to 6% of sales. The company also believes that its supplies expense is equal to $5,000 plus 1% of sales. Rent is $4,000 per month, Advertising is $3,000 per month, Depreciation is $3,000 per month, and Utilities are $2,500 per month. 6. 7. 8. 9 The company purchased an insurance policy covering 24 months for S24,000 on January 1 . 10. All selling and administrative expenses are paid in the month they are incurred except for commissions that are paid in the month after they are earned and the insurance which is paid two years in advance. 11. On January 31, Lily Company purchased Land costing $38,000. Lily paid cash for the land. 12 Interest on long-term debt is equal to 1% ofthe beginning balance and is paid each month. The company must maintain a minimum balance in cash of $10,000 and will use any cash surplus to pay down long-term debt. The company borrows cash in $1,000 increments 13. The company is subject to a 25% income tax rate. The company pays income taxes in month after they are accrued (expensed). 14. In January, the company will declare a $2,500 dividend that it will pay in February. 15. The company had a beginning balance sheet (as of January I) as follows: LIAB & STOCKHOLDERS EQUITY Current Assets Cash Accounts Receivable Prepaid Insurance Inventory Total Currents Assets Property, Plant,& Equipment Current Liabilities $10,000 $44,000 Accounts Payable Commissions Payable $15,680 $6.600 $1,000 Income Taxes Payable $16.800Dividends Payable Total Current Liabilities Long Term Debt Stockholders Equity $23,280 $60,000 $70,800 Land $10000 $40.000 Common Stock $10,000 Accumulated Depreciation Total PPE Total Assets (520,00)Retained Earnings $30,000 $100.,800 Total Stockholders Equity Total liab &SE $17.520 $100,800 Prepare for January and February: 1. Sales budget 2. Purchases budget 3. Selling& Admin Expense budget 4. Cash Budget 5. Budget/Proforma Income Statement 6. Budget/Proforma Balance Sheet