Question 26:

A business borrows $40,000 from a bank and signs a 4-year loan with an annual interest rate of 7%.

Requirements:

1. Calculate the total interest expense over the term of the loan.

2. Record the journal entry to recognize the borrowing of funds.

3. Post the journal entry to the Loan Payable account in the ledger.

4. Analyze how this transaction affects the company's balance sheet and debt levels.

5. Discuss the importance of loan terms and interest rates in financial decision-making.