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

1. An Ontario investor is considering purchasing the common shares of Fight Fat Ltd., which operates 13 fitness centres in the Toronto area. The investor plans on holding the investment for at least three years.

2. Comeau Ltée is considering extending credit to a new customer. The terms of the credit would require the customer to pay within 45 days of receipt of the goods.

3. The chief financial officer of Private Label Corporation 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. She needs to ensure that there will still be enough cash to expand operations when needed.

4. Drummond Bank is considering extending a loan to a small company. The company would be required to make interest payments at the end of each month for five years, and to repay the loan at the end of the fifth year.

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. Choose only one financial statement in each case, and briefly give reasons for your choice.