Reference no: EM132916406

Sarah and Paul's own basement was unfinished, so they did some work on it to create a similar setup to IKEA. Basically, they added 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 House Tech only recently started the practice, many customers have purchased pieces on the spot and Paul later delivered them to their houses. Sarah 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 treatments would be appreciated.

Sarah and Paul 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 or removing furniture and appliances once sales have been completed to customers. Sarah 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, House Tech would incur additional monthly expenses of $500 a month. Sarah expects the new house will boost current sales by 10%. She also expects its value to increase by $30,000 over ten years. Sarah is asking for your input on whether they should rent, buy, or avoid the house altogether.

Required:

Problem 1: Prepare a well-organized business report for House Tech. Discuss all relevant issues, including pros and cons of each course of action. Outline any questions or inquiries which should be directed to Sarah or Paul and why the information is important to certain decisions. Please make sure your quantitative analysis is supported with a qualitative analysis.