How is treasury stock displayed on the balance sheet?

Treasury stock is displayed on the balance sheet as a reduction of total stockholders' equity. This is because treasury stock represents shares that have been repurchased by the company and are held in its own treasury rather than being outstanding shares available to investors. When a company buys back its own stock, it reduces the total equity available to shareholders, reflecting the outflow of cash and the reduction of shares outstanding.

This presentation emphasizes the fact that these shares do not contribute to the equity available to shareholders, which is why treasury stock is recorded as a contra equity account. In essence, it reduces the overall stockholders' equity section on the balance sheet, signifying that those shares are no longer part of the equity available to investors.

Other options do not accurately represent the treatment of treasury stock; it is neither an asset nor a liability, nor is it added to retained earnings. These distinctions are crucial in understanding how a company's equity structure is affected by share repurchase activities.