If an internal service fund predominantly serves enterprise funds, in government-wide statements, it is reported as part of:

• A. Governmental activities
• B. Business-type activities
• C. Fiduciary activities
• D. Component units

Answer: (B)

In government-wide statements, activities are presented as governmental or business-type based on their economic characteristics and how they are financed. An internal service fund typically accounts for internal charges for goods or services provided to other parts of the government. The key factor is who mainly benefits from those services. If the internal service fund predominantly serves enterprise funds, its activities mirror those of a business-type activity—financed primarily by user charges and operating like a private enterprise. Therefore, in the government-wide statements, it is reported as part of business-type activities. It wouldn’t be classified with fiduciary activities or as a separate component unit, and it wouldn’t automatically be in governmental activities when its main customers are enterprise funds.