Question

Working Backward: Debt Service Coverage Madison Corp. reported the following in the Current Assets section of its comparative balance sheets: December 31, 2017 December 31, 2016 Current Liabilities: Current portion of notes payable $412,000 $598,000 Supplemental information at the bottom of Madison's 2017 statement of cash flows was as follows: 2017 2016 Interest paid $138,500 $151,300 Income taxes paid 538,200 429,300 Madison's 2017 debt service coverage ratio was 21 to 1. Determine Madison's cash flow from operations for 2017.

Answer 1

Please ensure that Madison's 2017 debt service coverage ratio was 21.

Cash Flow from Operations before Interest and Tax divided by cash payment for Interest and Principal, the result in the figure is the debt service coverage ratio.
The current portion of notes payable on December 31, 2016, is 598,000 paid within next year. This amount is principal payments towards notes payable.
Cash payment for Interest	$              138,500
Cash payment for Principal	$              598,000
Cash payment for Interest and Principal	$              736,500
Cash payment for Interest and Principal	$              736,500
Multiply: Debt service coverage ratio	21
Cash Flow from Operations before Interest and Tax	$        15,466,500
Cash Flow from Operations before Interest and Tax	$        15,466,500
Less: Interest paid	$              138,500
Cash Flow from Operations before Tax	$        15,328,000
Less: Income taxes paid	$              538,200
Cash flow from operations for 2017	$        14,789,800