[SchruteBeet]

A Building Authority was created by the city and organized as a separate legal entity. The Authority is governed by a five-person board appointed for 6-year terms by the mayor, subject to city council approval. The authority uses the proceeds of its tax-exempt bonds to finance the construction or acquisition of general capital assets for the city only. The bonds are secured by the lease agreement with the city and will be retired through lease payments from the city.

Which of the following describes the city’s reporting of the Building Authority?
A. The Building Authority is not a component unit of the city and will not be reported by the city.
B. The Building Authority is a component unit and the city will make a note disclosure only.
C. The Building Authority is a component unit and will be reported as blended with the city’s funds.
D. The Building Authority is a component unit and will be reported as discretely presented in the city’s financial statements.

Answer is C. Ninja’s explanation “The Authority is a component unit of the city. The Authority’s governing body is appointed by the city and the lease constitutes the imposition of a financial burden on the city. A component unit should be included in the reporting entity or primary government’s financial statements using the blending method if the component unit’s governing body is the same as the primary government; if the component unit provides services entirely or almost entirely to the primary government; or if the component unit’s debt is expected to be repaid with resources provided by the primary government even if provided through a lease arrangement. The Authority will be reported using the blending method because the Authority provides services entirely to the city and its debt will be repaid with city resources over time. Only one of the three criteria needs to be met for the blending method to be used. In this case, two of the three criteria were met.”

I am studying using Becker and it says the three criteria for discrete presentation are: access of component’s resources by primary govt, significance of resources to primary govt and benefit exclusively to primary govt. Accordingly, shouldn’t the authority in question be presented discretely?

[SchruteBeet]

Anyone?

[Author]

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