International Business Machines (IBM) is a leading provider of computer products and services. The company is known for its hardware products but has focused on providing information technology services in recent years. IBM provides standard warranties with the sale of its products. The company's note on significant accounting policies states:

In addition, IBM offers its customers an option to purchase extended warranties. Revenue from extended warranty contracts, for which the company is obligated to perform, is recorded as deferred revenue income and subsequently recognized on a straight-line basis over the delivery period.
Selected information related to warranties provided by IBM follows (in millions of U.S. dollars):

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1. Compute the amount of warranty expense for 2008 and 2009.
2. Prepare journal entries to record both the warranty expense for 2009 and the payments made under the warranty during the year.
3. Compute the ratio of the warranty expense to net revenues for the three years. Assume that the warranty expense is \(\$ 466\) for 2007 . Has the ratio increased or decreased during the three-year period? Provide possible reasons for the changes in the ratio.
4. Based on the limited information available about the warranty expense and settlements during these three years, should IBM reduce the ratio of the warranty expense to net sales in future years? Explain.
5. Compute the extended warranty revenue recognized during 2008 and 2009, and prepare the journal entry to record the revenue recognized in 2009.

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2009 2008 2007 Net revenues $95,758 $103,630 $98,786 Standard warranty liability, end of year 316 358 412 Settlements made during the year 406 460 607 Extended warranty deferred revenue, end of year Additions to extended warranty deferred revenue 665 589 409 283 335 331 during the year