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 $ 4,900,000 Engineering design work 1,360,000 Development of a prototype device 690,000 Testing and modification of the prototype 490,000 Legal fees for patent application 89,000 Legal fees for successful defense of the new patent 49,000 Total $ 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