Financial decisions made by users often depend on one financial statement more than the others. Consider each of the following independent, hypothetical situations:

1. The South Face Inc. is considering extending credit to a new customer. The credit terms would require the customer to pay within 30 days of receiving goods.

2. An investor is considering purchasing the common shares of Orbite Online, Inc. The investor plans on holding the investment for at least five years.

3. Caissed' Économie Base Montréal is thinking about extending a loan to a small company. The company would be required to make interest payments at the end of each month for three years, and to repay the loan at the end of the third year.

4. The chief financial officer of Tech Toy Limited is trying to determine whether the company is generating enough cash to increase the amount of dividends paid to shareholders in this, and future, years. He needs to be sure that Tech Toy will still have enough cash to expand operations when needed.

Instructions

(a) Identify the key user(s) in each situation and determine whether they are internal or external users.

(b) State whether the user(s) you identified in (a) would be most interested in the income statement, statement of financial position, or statement of cash flows to make their decision. Choose only one financial statement in each case, and briefly give reasons for your choice.