Final answer:
The cancellation of shares by a corporation may directly decrease but not increase retained earnings, as it reflects a use of the company's retained profits but does not affect the net income (option c).
Step-by-step explanation:
The question refers to the financial impacts of a corporation reacquiring and cancelling its own shares. When a corporation buys back and cancels its shares, the acquisition is often done using the company's retained earnings which decreases this account. However, this action does not directly affect the net income, as it is a balance sheet transaction rather than one that would be reflected on the income statement. Cancellation of shares does not lead to recognition of gain or loss in the income statement, so it cannot increase net income. Therefore, the correct answer would be that the reacquisition and cancellation of shares by a corporation may directly decrease but not increase retained earnings