INSTALLMENT SALE 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:

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

. Determine the present value of the payments.

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

Exercise