In the current year, Mary, Andrew, and Paul formed Venezia General Partnership. Mary contributed $55,000 cash, Andrew contributed $55,000, and Paul contributed land with a cash basis of $70,000 and a fair market value of $180,000. The partnership assumed a $70,000 mortgage on the land; no partner is personally liable for the mortgage. At the end of the current year, Venezia made a $7,000 payment on the mortgage. Mary, Andrew, and Paul will split all profits and losses equally.

Current-year operations had the following results:

• Sales revenue: $260,000
• Cost of goods sold: $205,000
• Operating expenses: $35,000
• Long-term capital gains: $1,200
• Section 1231 Gains: $450
• Charitable contributions: $350
• Municipal bond interest: $150
• Salary paid as a guaranteed payment to Andrew (not included in expense): $1,500

1. Determine Mary's, Andrew's, and Paul's initial basis in the partnership interest.
2. What is the effect of the mortgage on each partner's basis?
3. Calculate current year ordinary business income by preparing page 1 of Form 1065.