Spero Inc., purchased equipment for $640,000 on January 1. The equipments useful life in hours is estimated to be 175,000 hours. The estimated residual value is $45,000 and the estimated useful life is 8 years. The machine was used for 19,000 hours in the first year. If the activity method is used, what is the depreciation expense for the first year of the assets life?

1. $74,375
2. $80,000
3. $64,600
4. $69,485