Final answer:
The machinery's cost should be expensed over its five-year life by using depreciation, which spreads the cost out in alignment with its useful life and the benefit it provides. This aligns with GAAP and allows for more accurate financial and tax reporting.
Step-by-step explanation:
I agree that the cost of the machinery should be expensed over the life of the machinery. This accounting practice is known as depreciation. It allocates the cost of a tangible asset over its useful life and is used to account for declines in value over time. Expensing the cost immediately would not accurately represent the machinery's usage and value contribution to the company's operations over several years.
Cypress Manufacturing Company's approach follows the Generally Accepted Accounting Principles (GAAP), which advocate for matching expenses with the revenues they help to generate. For example, if the machinery purchased has a five-year life, it is productive over that period, and thus the cost should be expensed uniformly as it generates economic benefits for the business.
Such a method ensures that the financial statements reflect a more accurate picture of the company's health and profitability during those years. It also has implications for tax deduction purposes, as companies can deduct depreciation expenses each year, reducing their taxable income.