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XO Group compensates top management using stock options. On January 1, Year 1, XO issued 36,000...

XO Group compensates top management using stock options. On January 1, Year 1, XO issued 36,000 options to purchase $1 par value common stock for $20 per share (which is the current stock price). The vesting period is 3 years, after which the options can be exercised anytime during the 7 years thereafter. At the grant date, the fair value of the option is $2. What is the grant-date effect on current period income and shareholders' equity? (Hint: When considering the effect on shareholders' equity, remember the relation between current period income effects and retained earnings.)

a. Current period income decreases by $72,000, and shareholders' equity decreases by $72,000.
b. Current period income decreases by $72,000, and shareholders' equity does not change.
c. Current period income does not change, but shareholders' equity decreases by $72,000.
d. Neither current period income nor shareholders' equity changes.
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