Situation one is a corporation because it discusses paying a dividend to the investors and only corporations pay dividends to its shareholders. The finance director is looking at the cash flow and income statement to determine if a sufficient flow of cash is moving into the business and if the company is profitable. This information will determine if the profit is large enough to buy the new equipment without borrowing any additional funds. Additionally, the financial statement will report if enough cash is available to pay out a dividend after the equipment purchase. Once the equipment is purchased, the value will be added to the asset section of the balance sheet.

Situation two is a sole proprietorship because the business appears to be smaller than a corporation, has one owner listed, and is extending credit short-term to customer. The financial document reviewed is the balance sheet that will show an increase in accounts receivable from the credit transaction and income statement showing an increase in revenue from the sale. After the receivable is paid, this asset will be transferred to cash on the balance sheet and the cash flow statement will show the movement of funds into the business.