In 2012 Satellite Systems modified its model Z2 satellite to

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In 2012, 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 ..............................$4,000,000Engineering design work
...................................................1,360,000Development of a prototype device
.........................................600,000Testing and modification of the prototype
.................................400,000Legal fees for patent application
.............................................80,000Legal fees for successful defense of the new patent
......................40,000Total ........................................................................$6,480,000During 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. Which of the above costs should Satellite Systems capitalize
to the Patent account in the balance sheet?2. Which of the above costs should Satellite
Systems report as research and development expense in the income statement?3. What are
the basic criteria for determining whether to capitalize or expense intangible related costs?View
Solution:
In 2012 Satellite Systems modified its model Z2 satellite to

ANSWER
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