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Exercise $7-7($Algo$)$ Report patent and research and development expense $($LO$7-2)$

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

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Basic research to develop the technology$ $4,200,000$Engineering design work$1,220,000$Development of a prototype device$620,000$Testing and modification of the prototype$420,000$Legal fees for patent application$82,000$Legal fees for successful defense of the new patent$42,000$Total$ $6,584,000$

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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.

Exercise $7-7($Algo$)$ Part $1$

Required:

$1.$ How much$$ should Satellite Systems capitalize in the Patent account in the balance sheet?