OConnor Company ordered a machine on January 1 at a purchase price of $15,000. On the date of delivery, January 2, the company paid $4,000 on the machine and signed a long-term note payable for the balance. On January 3, it paid $200 for freight on the machine. On January 5, OConnor paid cash for installation costs relating to the machine amounting to $900. On December 31 (the end of the accounting period), OConnor recorded depreciation on the machine using the straight-line method with an estimated useful life of 10 years and an estimated residual value of $1,600.

1. Compute the depreciation expense to be reported for the first year.
2. What should be the book value of the machine at the end of the second year?