Please help with the following exercise related to Governmental Accounting:

Franklin City established an Airport Authority as a municipal corporation under

state law for the purpose of acquiring, maintaining, operating, and financing an

airport.The Authority's governing board consists of five members--four

appointed by the city's Mayor and one appointed by the Board of County

Commissioners.The authority's Board members may not be removed by the

appointing officials, except for cause through an impeachment process.

The Airport Authority has authority to issue bonds, levy taxes, own property in its

own name, determine its own budget, and establish billing rates.All debt issued

is payable from revenues derived solely from the operation of the Authority and

Franklin City has no obligation for the debt of the Authority.The authority's

Board controls the day-to-day operations of the organization.The authority has

sole responsibility for financing its deficits and has sole control of any surplus

funds.

The city's Finance Director is preparing the city's financial statements for the

current fiscal year. The Director has come to you, as the city's Accounting

Supervisor, asking for your opinion as to whether the city should include the

authority in its financial statements as a component unit. If not, should it be

reported as something else or not at all?

You need to determine how the city should report the authority in its financial

statements. Explain and justify your conclusion by citing the applicable accounting

standards criteria that you are relying on to make your determination.