Question

The income statement of Kimbrough Community Clinic for the year ended December 31, 2017, is provided below.

Kimbrough Community Clinic Income Statement For the year ended 12/31/2017
Revenues:
Net patient service revenue $774,000
Operating Expenses:
Medical services $361,000
Support services 253,000
General services 95,000
Depreciation 33,000 (742,000)
Operating Income 32,000
Other Income and Expenses:
Interest income 34,000
Interest expense 12,000 22,000
Net Income $54,000

Assuming a maximum annual debt service of $68,000, calculate the organization's debt service coverage ratio.

a. 1.46
b. 1.78
c. 0.79
d. 0.13

Answer 1

0.47

Step-by-step explanation:

Debt service coverage ratio = Net Operating Income ÷ Total Debt Service

where,

Net Operating Income = Revenue - Certain Operating Expenses

Total Debt Service = Current Debt Obligations

therefore,

debt service coverage ratio = $32,000 ÷ $68,000 = 0.47