Johnson Properties owns land on which natural gas wells are located. Columbus Gas Company signs a note to buy this land from Johnson on January 1, 2009. The note requires Columbus to pay Johnson $775,000 per year for 25 years. The first payment is to be made on December 31, 2009. The appropriate interest rate is 9 percent compounded annually.

Required:

1. Prepare a diagram of the appropriate cash flows from Columbus Gas Company’s perspective.

2. Determine the present value of the payments.

3. Indicate what entry Columbus Gas should make at January 1, 2009.