In 2021, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures: Basic research to develop the technology$2,300,000 Engineering design work 740,000 Development of a prototype device 360,000 Acquisition of equipment 66,000 Testing and modification of the prototype 260,000 Legal and other fees for patent application on the new communication system 46,000 Legal fees for successful defense of the new patent 26,000 Total$3,798,000 The equipment will be used on this and other research projects. Depreciation on the equipment for 2021 is $16,000. During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized. Required: Prepare correcting entries that reflect the appropriate treatment of the expenditures.