Final answer:
Repurchasing preferred stock below its original issue price and retiring it results in a decrease in total shareholders' equity, as it signifies a loss to the equity holders and lowers the equity on the company's balance sheet.
Step-by-step explanation:
When preferred stock is repurchased by the issuing corporation at a price below the original issue price and the stock is retired, the correct answer is B) Decreases total shareholders' equity. The rationale behind this is that the transaction reduces the company's financial resources without increasing its assets. The difference between the original issue price and the repurchase price results in a loss to the equity holders, as it reduces the overall equity in the company's balance sheet.
For instance, if a corporation initially issued preferred stock for $100 per share and repurchases it for $80, the $20 difference per share reduces the total shareholders' equity. Instead of having $100 as equity for each share, the company only retains $80 of equity after repurchasing the stock at a lower price. This process is known as 'treasury stock' accounting.