Final answer:
Treasury stock reduces total stockholder's equity by representing repurchased shares that are reported as a negative number on the balance sheet, thus decreasing the amount of outstanding shares and equity.
Step-by-step explanation:
The effect of treasury stock on total stockholder's equity is that it reduces the total equity. This is because treasury stock represents shares that the company has repurchased from investors. These repurchased shares are then listed as a negative number on the balance sheet, indicating a reduction in overall stockholders' equity. When a company buys back its own shares, it invests in itself, decreasing the cash or assets equivalent to the cost of the repurchase, while also diminishing the number of shares outstanding, causing a decrease in stockholders' equity. However, the effect on the book value per share might be positive, as there are fewer shares outstanding after the buyback.