Ireland Corporation planned to be in operation for three years.

During the first year, 20x1, it had no sales but incurred $120,000 in variable manufacturing expenses and $40,000 in fixed manufacturing expenses.

In 20x2, it sold half of the finished goods inventory from 20x1 for $100,000 but it had no manufacturing costs.

In 20x3, it sold the remainder of the inventory for $120,000, had no manufacturing expenses and went out of business.

Marketing and administrative expenses were fixed and totaled $20,000 each year.

Required:

a. Prepare an income statement for each year using absorption costing.

b. Prepare an income statement for each year using variable costing.