The Yellow Equipment Company, an accrual basis C corporation, is a manufacturer's representative and works on a commission basis (15% of sales that it places) and does not carry inventory.In November 2012, Yellow made a sale and collected a commission for $20,000. In June of 2013, the customer had not received the equipment from the manufacturer and canceled the order. As a result, Yellow was required to refund the $20,000 commission to the manufacturer.Yellow's taxable income in 2012 was $70,000, and in 2013 Yellow's taxable income was $25,000 after deducting the refund.The applicable tax rate schedule is 15% on the first $50,000 of income and 25% on income in excess of $50,000.What is the effect of the refund on Yellow's 2013 tax liability?

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The Answer of The Yellow Equipment Company, an accrual basis C corporation, is a manufacturer's representative and works on a commission basis (15% of sales that it places) and does not carry inventory.In November 2012, Yellow made a sale and collected a commission for $20,000. In June of 2013, the customer had not received the equipment from the manufacturer and canceled the order. As a result, Yellow was required to refund the $20,000 commission to the manufacturer.Yellow's taxable income in 2012 was $70,000, and in 2013 Yellow's taxable income was $25,000 after deducting the refund.The applicable tax rate schedule is 15% on the first $50,000 of income and 25% on income in excess of $50,000.What is the effect of the refund on Yellow's 2013 tax liability?

The Yellow Equipment Company, an Accrual Basis C Corporation, Is