Balsam City's library board is appointed by the city council, which has agreed to subsidize the operating costs of the library at a material amount to be determined each year. In addition, the city is paying debt service on general obligation bonds issued to construct the library. Based on generally accepted accounting principles (GAAP) criteria for defining the reporting entity:
A) The library is a component unit.
B) The library is a special purpose government.
C) The library is a joint venture.
D) The library is a jointly governed organization.

Question

Quizplus · Accepted Answer

The library is a component unit because it is financially accountable to the city and is included in the city's financial statements. The city subsidizes its operating costs and is paying debt service on bonds issued to construct the library, indicating that the city has significant financial control over the library. As a component unit, the library's financial statements are included in the city's financial statements as a discretely presented component.

Balsam City's Library Board Is Appointed by the City Council