Wentworth Watches Ltd manufactures and sells watches with a 2-year warranty. The warranty provision account had a debit of \($2000\) before adjusting entries on 31 December 2018, which is Wentworth Watches’ year-end. The estimated cost of servicing outstanding warranties is \($25\) 000 at 31 December 2018. Prepare the adjusting journal entry to record the warranty provision as at 31 December 2018.
Reasoning
A provision of \($25\) 000 is needed. A credit entry of \($27\) 000 is needed to increase the warranty provision account from \($2000\) debit to \($25\) 000 credit.