Choice "B" is correct. When government-wide financial statements are prepared for a governmental entity, interfund receivables and payables that occur between funds categorized as governmental activities and funds classified as business type activities should be reported as internal balances and aligned so that they sum to zero on the financial statements. They are not eliminated from individual fund activities prior to preparation of the government-wide financial statements.Choice "d" is incorrect. Reservations of fund balance are used only for portions of the fund balance, which are not appropriable or are legally segregated for a specific future use, such as reserve for encumbrances and are appropriate for fund financial statements.
Choice "a" is incorrect. Interfund receivables and payables should not be used to adjust the fund balance.
Choice "c" is incorrect. Interfund receivables and payables are displayed in the fund financial statements but are eliminated as part of the preparation of the government-wide financial statements.