In a corporation’s balance sheet, how is treasury stock typically presented?

• A. As additional paid-in capital, increasing total shareholders’ equity
• B. As an asset reported under investments at its fair value
• C. As a liability reported under long-term liabilities at its par value
• D. As a contra equity account reported in the shareholders’ equity section, reducing total shareholders’ equity

Answer: (D)

Verified step by step guidance

1. Understand that treasury stock represents shares that the corporation has repurchased from shareholders and holds in its own treasury.
2. Recognize that treasury stock is not an asset because the company cannot own itself as an asset; instead, it is recorded as a contra equity account.
3. Recall that a contra equity account reduces the total shareholders' equity, so treasury stock is reported as a negative amount within the shareholders' equity section of the balance sheet.
4. Note that treasury stock is not reported as additional paid-in capital, an asset, or a liability, but specifically as a deduction from total equity.
5. Therefore, on the balance sheet, treasury stock appears as a contra equity account, reducing the total shareholders' equity.