@theglobb
Reddingcruiser may be correct. Based upon your picture of the front nose, there is a needle bearing in there as well.
Either way, you'll likely have to do an "exploratory" to determine the extent of the damage.
Fortunately, if you and your Dad are mechanically inclined, a member here named Coolerman has an illustrated "how-to" guide
on rebuilding the transfer case.
go to
!Oy: Coolermans 1971 FJ40 Build and choose the page, "Drive Train: rebuilding the 3sp transfer case"
Page 1 fig. 9 and fig. 14 show the needle bearing inside the housing you show in your picture. Page 2 fig. 5 shows you how difficult that bearing is to remove.
Page 2 fig. 6 shows the idler gear needle bearings that Reddingcruiser mentioned.