When should an internal service fund be consolidated as part of governmental activities?

The correct reasoning focuses on the relationship between internal service funds and governmental activities. An internal service fund should be consolidated as part of governmental activities when it is primarily used by those governmental activities. This scenario reflects the core purpose of internal service funds, which are established to provide services to departments and agencies within the governmental entity.

When governmental departments utilize an internal service fund for services—such as information technology, vehicle maintenance, or printing services—it indicates that the fund is integral to governmental operations. This consolidation ensures that the financial statements accurately represent the entity's overall activities and resources, allowing for a clearer picture of how funds are deployed across the organization to support various programs and initiatives.

In contrast, when fiduciary funds are the primary consumers of the services, the focus is on activities separate from governmental functions, making consolidation inappropriate in that context. The other options also do not align with the nature of internal service funds, as their operational independence or surplus generation does not necessarily impact the need for consolidation in relation to governmental activities.