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Installment Sale Wilke Properties owns land on which natural gas wells are located. Cincinnati Gas Company signs a note to buy this land from Wilke on January 1, 2020. The note requires Cincinnati to pay Wilke $775,000 per year for 25 years. The first payment is to be made on December 31, 2020. The appropriate interest rate is 9% compounded annually. Required: Note: Round answers to two decimal places. 1. Prepare a diagram of the appropriate cash flows from Cincinnati Gas’s perspective. 2. Determine the present value of the payments. 3. Indicate what entry Cincinnati Gas should make at January 1, 2020.

BuyFind

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881
BuyFind

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
Publisher: Cengage Learning
ISBN: 9781337690881

Solutions

Chapter
Section
Chapter A3, Problem 23E
Textbook Problem

Installment Sale

Wilke Properties owns land on which natural gas wells are located. Cincinnati Gas Company signs a note to buy this land from Wilke on January 1, 2020. The note requires Cincinnati to pay Wilke $775,000 per year for 25 years. The first payment is to be made on December 31, 2020. The appropriate interest rate is 9% compounded annually.

Required:

Note: Round answers to two decimal places.

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

2. Determine the present value of the payments.

3. Indicate what entry Cincinnati Gas should make at January 1, 2020.

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Cornerstones of Financial Accounting
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