Ford Motor Company is one of the world’s largest companies, with annual sales of cars and trucks in excess of $144 billion. A recent annual report for Ford contained the following note: Warranties Estimated warranty costs are accrued for at the time the vehicle is sold to a dealer. Estimates for warranty cost are made based primarily on historical warranty claim experience.

1. Assume that this year Ford paid cash to service warranty claims in the amount of $4.0 billion. Ford also accrued expenses for warranties in the amount of $3.9 billion. If Ford had a balance in its accrued warranties account of $1.0 billion to start the year, what is the balance at the end of the year?

Bally Total Fitness Holding Corporation operates fitness centers mainly in North America. The following note was contained in a recent annual report for Bally:

Revenue Recognition
As a general principle, revenue is recognized when the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred and services have been rendered, (iii) the price to the buyer is fixed or determinable and, (iv) collectability is reasonably assured. Membership revenue is earned on a straight-line basis over the longer of the contractual term or the estimated membership term. The weighted average membership life is 39 months.

2. Assume that Bally collected $23 million in December for “New Year’s Resolution” memberships starting January 1 of next year. What is the amount of unearned revenue that should be reported on this year’s balance sheet and next year’s balance sheet associated with the $23 million?