On January 3, 2013, Hippo Corp. purchased a machine for $600,000. The machine was being depreciated using the straight-line method over an estimated useful life of ten years, with no residual value. At the beginning of 2020, the company paid $150,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years (15 years total). The depreciation expense for 2020 should be

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The original cost of the machine was $600,000, depreciated over 10 years, which equals $60,000 per year. By the beginning of 2020, the machine would have been depreciated for 7 years (2013-2019), totaling $420,000 ($60,000 * 7 years). After the overhaul, the remaining book value is $180,000 ($600,000 - $420,000), and the overhaul cost adds $150,000, making the new basis $330,000 ($180,000 + $150,000). With the extended life of 15 years total and 7 years already passed, there are 8 years left for depreciation. Therefore, the new annual depreciation is $330,000 / 8 years = $41,250.