During 2018, Fueltronics spends $200,000 on several different research projects to gain new knowledge about the use of alternative fuels to operate motorized vehicles. Because one of the projects shows very high promise, the company spends an additional $500,000 near the end of the year to develop this product for future use. This project is considered to have a high probability of success, and management intends to continue to develop it for future consumer use.

Required:
1. Explain how the research cost of $200,000 and the development cost of $500,000 would be reported under U.S. GAAP.
2. Explain how the research cost of $200,000 and the development cost of $500,000 would be reported under IFRS.
3. Explain the effects in the company’s income statement and balance sheet of using IFRS versus U.S. GAAP to account for these research and development costs.