Satellite Systems modified Its model 22 satellite to incorporate a new communication device. The company made the following expenditures: Basic research to develop the technology Engineering design work Development of a prototype device Testing and modification of the prototype Legal fees for patent application Legal fees for successful defense of the new patent $4,100, 000 1, 200, 000 610,000 410, 000 81,000 41, 000 Total $6,442,000 During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all the above as costs of the patent. Management contends that the device represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized. Required: 1. Determine the amount Satellite Systems should capitallze to the Patent account in the balance sheet. 2. Determine the amount Satellite Systems should report as research and development expense in the income statement