The city created a legally separate housing authority to provide low-income housing to residents of the city. The city issues debt for the housing authority in the name of the city, but the housing authority is responsible for repayment of the debt. The housing authority is governed by a board composed of all five members of the city council. Actions can be taken by the authority upon receiving an affirmative vote by a simple majority of the board. The housing authority would be considered a(n):
A) Primary Government.
B) Component Unit.
C) Related Organization.
D) Affiliated Organization.

Question

Quizplus · Accepted Answer

The housing authority would be considered a Component Unit because it is legally separate from the city but is closely associated with the city, as evidenced by the city issuing debt in its name and the city council members serving as its governing board. Component units are entities for which the elected officials of the primary government are financially accountable, or which have a significant relationship with the primary government, making them part of the reporting entity.

The City Created a Legally Separate Housing Authority to Provide