Final answer:
Firms buy back shares for reasons like facilitating stock options and keep these as treasury stock. The accounting for a firm's investments depends on their ownership level in the investee firm. Bonds not held to maturity are treated as trading or available-for-sale securities.
Step-by-step explanation:
Firms can buy back their own shares for various reasons, such as the preparation for the exercise of (i) stock options, and may keep the repurchased shares as (ii) treasury stock. The accounting rules for a firm's financial investments depend on the level of influence and control the firm has over the investee firm, primarily determined by the percentage of ownership. If a firm has no intention to hold the bond until its maturity, its investment in a bond may be classified as trading securities or available-for-sale securities.
Firms seek financial capital through various means which include borrowing through banks or bonds, and selling stock. When choosing a method, they weigh the downsides of committing to scheduled interest payments against the benefits of retaining control over their operations. Selling stock means conveying ownership to the public and accountability to a board of directors and shareholders. Understanding the purpose behind share buybacks, accounting for investments, and categorizing bonds is essential for assessing a firm's financial strategies and health.