Flounder Company is a U$.$S$.-$based company that designs and builds compressors for large HVAC units. Flounder decides to build a new plant in China, its first attempt at doing business internationally. During its start$-$up phase, Flounder incurs $$2006000$ of start$-$up costs including $$1003000$ in legal fees, $$702100$ to introduce its product, and another $$300900$ in state fees to the Chinese government to organize the new business entity. Flounder Company's CEO fully expects the company to become profitable during its $3$rd year of operations. How should Flounder Company account for these costs?

Flounder can capitalize $$702100$ related to introducing its product, but the other costs must be expensed as incurred.

Flounder can capitalize $$1003000$ in legal fees, but the other costs must be expensed as incurred.

Flounder can capitalize $$1303900$ related to legal and state fees, but the other costs must be expensed as incurred.

Flounder must expense all $$2006000$ start$-$up costs as incurred.