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Satellite Systems modified its model Z 2 satellite to incorporate a new communication device. The company made the following expenditures: Basic research to develop the

Satellite Systems modified its model Z2 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
Total
$ 4,900,000
1,360,000
690,000
490,000
89,000
49,000
$ 7,578,000
During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all 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

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