Of the following powers possessed by Government A, which is NOT an indication that Government B should be included as a component unit of Government A?
A) The governing documents state that, if dissolved, the assets of Government B will become the property of Government A.
B) Government A issues revenue bonds in its name backed by the revenues of a project to be undertaken by Government B. Government A is neither legally nor morally liable for repayment.
C) Government A has agreed to provide financial support to Government B if Government B operates at a deficit but in the entire 75 years that Government B has operated, it has never operated at a loss.
D) The governing documents state that once Government B has equity in excess of a certain amount, 50 percent of all future operating profits will be used to reduce bonded debt of Government A.

Question

Quizplus · Accepted Answer

The correct answer is B because the issuance of revenue bonds by Government A backed by the revenues of a project undertaken by Government B, where Government A is neither legally nor morally liable for repayment, does not indicate a level of control or financial interdependency that would necessitate including Government B as a component unit of Government A. The other options (A, C, and D) suggest a degree of control or financial benefit/obligation that supports the inclusion of Government B as a component unit.

Of the Following Powers Possessed by Government A, Which Is