Question

How should financial information for internal service funds be reported in the government-wide financial statements?

1) As part of governmental activities.
2) As part of business-type activities.
3) Amounts allocated proportionately between governmental and business-type activities.
4) Usually as part of governmental activities, unless the internal service fund predominantly serves one or more enterprise funds.

Answer 1

Internal service funds are reported as part of business-type activities in government-wide financial statements, except when predominantly serving enterprise funds, in which case they are reported as part of governmental activities.

Step-by-step explanation:

Financial information for internal service funds should be reported in the government-wide financial statements as part of business-type activities. However, this rule applies unless the internal service fund predominantly serves one or more enterprise funds, in which case it would usually be reported as part of governmental activities. This is particularly relevant for entities such as state and local governments that are involved in various types of spending, such as purchasing goods and services (like computers and equipment for schools) and hiring personnel for different departments and agencies. They manage the funds and associated reporting based on public sector accounting principles.