do not really understand where the staircase comes into play?

It is a bit confusing -- a rough sketch plan would help. Are you wanting to use the space with the fireplace as a living room or dining area? And the room with the stairs?

More photos would definitely help, but it looks like you could put some stools at the counter. Then for the living room it will depend on if you are planning on having a TV or not. There are a few ways in which you could do the setup. If you want a TV you would want the TV to be placed on the wall across from the island. You could get a sectional, or a sofa with two chairs. Then put art over the fireplace. For the dining room it looks like a round table might work. See our designs below for some more help:

West Hills Cottage: Living Room · More Info

West Hills Cottage: Dining Room · More Info

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What color paint are you planning on using, or is it staying the same?

Different paint colors would change my decision on furniture pieces.

Staying the same? I would bring some pops of color with maybe accent chairs being placed on either sides of the fireplace if there's enough room (i think its a fireplace).

Definitely agree with some barstools for counter - maybe black wrought irony to match the light fixtures or maybe a shiny silver to match the backsplash.

depending on the sizes of the rooms. i would use the room off the kitchen for tv watching, children play if you have, an office/computer area?

I would have the sofa face the fireplace. if possible, i would put the tv to the left of the fireplace if there is room and you must have one in there. other wise i would have it on the wall to the right of the fireplace.

do you feel the need for a dining room?

How many will there be on a regular basis? what colors or styles do you like. this will help everyone help you further.

Is "she" a reader? The front room might make a stunning formal lounge/library and even ..../art gallery. Could you give us a picture of that wall with the front door and front window? It might take two pics to show the whole thing.

This idea, translated into her style..

Darlinghurst Terrace · More Info

I think they could work in the front room -- there can be something very genteel (:-) about a living room which is also a library. I like it because it would give a room that has no fireplace or TV a raison d'etre of its own. But if she's not a book person then it doesn't make sense. Our houses must reflect our lives. It could of course just be a formal living room, which is a reason to exist in itself if one has guests often enough.