Assume a firm buys the bond of another firm as an investment for $1,000 and after one year the value increases to $1,050. If the firm classifies this bond as an available-for-sale security, what is the effect on the accounting equation?
- assets increase $1,050; owners' equity increases $1,050
- assets increase $50; owners' equity increases $50
- assets decrease $50; owners' equity decreases $50
- there is no impact on the accounting equation because the firm cannot recognize the increase in market value until it sells the investment.