Which of the following sets of circumstances require a government to treat another entity as a component unit of its reporting entity? Why?
1. The government appoints 3 of the 7 members of the governing body of the other entity, guarantees substantial portions of its debt, and must approve its tax rate.
2. The government appoints 5 of the 7 members of the governing body of the other entity, guarantees a limited portion of its debt, and does not have substantive approval authority over its budget, its tax rate, or its debt issuances.
3. The government appoints 4 of the 7 members of the governing body of the other entity, annually provides in excess of 50% of its financing in nonexchange transactions, but has no direct authority over its operations or budget. Also, the other entity is a not-for-profit organization.
4. The government created the organization to perform key functions that it believed could be performed more effectively by a separate organization. The government does not appoint any board members but does have substantive approval authority over the hiring of key management personnel. If desired in the future, the government can take over the entity’s operations and eliminate the other entity.