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.