Khalid Company began business on January 1, 2011, with assets of $150,000 cash and equities of $150,000 capital shares. In 2011, it manufactured some inventory at a cost of $60,000 cash, including $16,000 for factory rent and other fixed factory overhead. In 2012, it manufactured nothing and sold half of its inventory for $43,000 cash. In 2013 it manufactured nothing and sold the remaining half for another $43,000 cash. It had no fixed expenses in 2012 or 2013.

There are no other transactions of any kind. Ignore income taxes. 

Prepare an ending balance sheet plus an income statement for 2011, 2012, and 2013 under 

(1) Absorption costing and 

(2) Variable costing (direct costing). Explain the differences in net income between absorption and variable costing.