Caleb has some experience with building furniture, so he has started making tables and chairs himself. After customers saw his work, they also requested custom pieces which he charged a premium for. In its first year, Home Gear completed 30 interior design engagements. Two-thirds of these were engagements where all major pieces were purchased. On average, the revenues totaled $6,000 for these jobs. The remaining third heavily involved Caleb's specialty items, resulting in higher revenue of $9,000.

Caleb estimates he spends $200 of material and 4.5 hours on average per piece. He believes he made 25 pieces last year. He wonders if the extra money is worth pursuing more higher revenue jobs. By advertising $2,500 a month, the annual numbers could be increased to 40 engagements, half of them including significant specialty items made by him.

Rachel and Caleb's own basement was unfinished, so they did some work on it, similar setup to IKEA. Basically, they routinely add new furniture and appliances which customers might find appealing. Then, customers are invited to the basement to view and even try furniture and appliances. Even though Home Gear only recently started the practice, many customers have purchased pieces on the spot and Caleb later delivered them to their houses. Rachel is wondering if the construction of the basement should be considered a business expense. She wants to be as ethical as possible and is leaning towards only including the furniture and appliances sold as expenses. However, some guidance on correct and ethical accounting and tax treatments would be appreciated.

Rachel and Caleb are thinking of buying or renting another house to showcase even more products and ideas. They are wondering if the house could be partially rented out to a tenant who would agree to keep things clean and permit customers to visit with advance notice. The tenant could also help with adding/removing furniture and appliances once sales have been completed to customers. Rachel estimates that the monthly rental income of $1,000 would potentially make up half of the mortgage payment (35% interest on average over ten years) and four-fifths of the entire rental payment. In both a rental and ownership scenario, Home Gear would incur additional monthly expenses of $500 a month, Rachel expects the new house will boost current sales by 10%. She also expects its value to increase by $30,000 over ten years. Rachel is asking for input on whether they should rent, buy, or avoid the house altogether.

Please provide calculations along with formula sheet