diff --git a/covdefaults.py b/covdefaults.py
index 54353ca..0b89619 100644
--- a/covdefaults.py
+++ b/covdefaults.py
@@ -2,6 +2,7 @@
 import re
 import sys
 import sysconfig
+from collections import OrderedDict
 from typing import Dict
 from typing import List
 
@@ -69,39 +70,64 @@ def __init__(
     def _parse_inst_pkg(installed_package: str) -> Dict[str, str]:
         result: Dict[str, str] = {}
         for entry in installed_package.split():
-            if entry:
-                key, value = entry, '.'
-                if entry.count(':') == 1:
-                    key, value = entry.split(':')
-                result[key] = value
+            key, value = entry, '.'
+            if entry.count(':') == 1:
+                key, value = entry.split(':')
+            result[key] = value
         return result
 
     def _set_source(self, config: CoverageConfig) -> None:
-        if not isinstance(config, CoverageConfig):  # pragma: no cover
-            # https://github.com/nedbat/coveragepy/issues/967
-            config = config.config
+        # set source to either:
+        # - cwd
+        # - installed pkg within purelib/platlib, these map back to src tree
+        # https://coverage.readthedocs.io/en/latest/config.html#paths
         source = []
+        paths = config.get_option('paths')
         if self._installed_package:
-            for path in {
+            search_packages = list({
                 sysconfig.get_paths()['platlib'],
                 sysconfig.get_paths()['purelib'],
-            }:
-                for pkg, dest in self._installed_package.items():
+            })
+            for pkg, dest in self._installed_package.items():
+                found = False
+                # also check in dest in case this is a develop install
+                possible_dir = search_packages + [os.path.abspath(dest)]
+                poss_dir_ord = list(
+                    OrderedDict(
+                        (i, None) for i in sys.path if i in possible_dir
+                    ).keys(),
+                )
+                for path in poss_dir_ord:
                     base = os.path.join(path, pkg)
                     for suffix in ('', '.py'):
                         at = f'{base}{suffix}'
                         if os.path.exists(at):
                             source.append(at)
-                            if dest is not None:
-                                if os.path.isfile(at):
-                                    src_path = dest
-                                else:
-                                    src_path = os.path.join(dest, pkg)
-                                config.paths[pkg] = [src_path, at]
-        # set paths to map to cwd
-        # https://coverage.readthedocs.io/en/latest/config.html#paths
+                            if os.path.isfile(at):
+                                src_path = dest
+                            else:
+                                src_path = os.path.join(dest, pkg)
+                            if not os.path.exists(src_path):
+                                raise RuntimeError(
+                                    'source path {} for {} does not exists'
+                                    ''.format(
+                                        src_path,
+                                        at,
+                                    ),
+                                )
+                            paths[pkg] = [src_path, at]
+                            found = True
+                            break
+                    if found:
+                        break
+                if not found:
+                    raise RuntimeError(
+                        f'could not find installed package {pkg}',
+                    )
+
         source.append(os.getcwd())
         config.set_option('run:source', source)
+        config.set_option('paths', paths)
 
     def _fix_omit(self, config: CoverageConfig) -> None:
         omit = set(config.get_option('run:omit') or [])
@@ -131,7 +157,7 @@ def _fix_omit(self, config: CoverageConfig) -> None:
                             if os.path.isdir(os.path.join(level, entry)):
                                 pattern += '/*'
                             else:
-                                if not entry.endswith('.pyc'):
+                                if not entry.endswith('.py'):
                                     continue
                             omit.add(pattern)
                     break
diff --git a/setup.cfg b/setup.cfg
index 2ec6197..83e09bf 100644
--- a/setup.cfg
+++ b/setup.cfg
@@ -22,7 +22,7 @@ classifiers =
 [options]
 py_modules = covdefaults
 install_requires =
-    coverage>=4.5
+    coverage>=5.1
 python_requires = >=3.6.1
 
 [bdist_wheel]
diff --git a/tests/covdefaults_test.py b/tests/covdefaults_test.py
index ac5f6c1..b1a392e 100644
--- a/tests/covdefaults_test.py
+++ b/tests/covdefaults_test.py
@@ -123,33 +123,54 @@ def test_fix_coverage():
     importlib.reload(covdefaults)
 
 
-def test_installed_package():
-    import easy_install  # module example - map
+def test_installed_package(tmp_path, monkeypatch):
+    root = os.path.dirname(os.path.dirname(__file__))
+    monkeypatch.chdir(root)
     import setuptools  # pkg example - map
-    import coverage  # package example - no map
 
     cfg = CoverageConfig()
-    value = 'easy_install:src setuptools:src coverage'
+    setuptools_src = (tmp_path / 'setuptools')
+    setuptools_src.mkdir()
+    value = 'covdefaults setuptools:{}' \
+            ''.format(setuptools_src.parent)
     c = covdefaults.CovDefaults(installed_package=value)
     c.configure(cfg)
-
-    assert dict(cfg.paths) == {
-        'easy_install': [
-            'src',
-            easy_install.__file__,
-        ],
+    setuptools_dir = os.path.dirname(setuptools.__file__)
+    cov_defaults = covdefaults.__file__
+    exp_source = [
+        cov_defaults,
+        setuptools_dir,
+        os.getcwd(),
+    ]
+    assert cfg.source == exp_source
+    exp_paths = {
+        'covdefaults': ['.', cov_defaults],
         'setuptools': [
-            'src/setuptools',
+            str(setuptools_src),
             os.path.dirname(setuptools.__file__),
         ],
-        'coverage': [
-            './coverage',
-            os.path.dirname(coverage.__file__),
-        ],
     }
-    assert cfg.source == [
-        easy_install.__file__,
-        os.path.dirname(setuptools.__file__),
-        os.path.dirname(coverage.__file__),
-        os.getcwd(),
-    ]
+    assert dict(cfg.paths) == exp_paths
+
+
+def test_installed_package_missing_pkg():
+    cfg = CoverageConfig()
+    value = 'missing'
+    c = covdefaults.CovDefaults(installed_package=value)
+    with pytest.raises(
+            RuntimeError,
+            match='could not find installed package missing',
+    ):
+        c.configure(cfg)
+
+
+def test_installed_package_missing_src():
+    cfg = CoverageConfig()
+    value = 'coverage:this-does-not-exists'
+
+    c = covdefaults.CovDefaults(installed_package=value)
+    with pytest.raises(
+        RuntimeError,
+        match='source path .* for .* does not exists',
+    ):
+        c.configure(cfg)