Assume that Russ Brothers did indeed fail, and that it had the following balance sheet when it was liquidated (in millions of dollars):

The liquidation sale resulted in the following proceeds:

From sales of current assets..... $14,000,000
From sales of fixed assets.......2,500,000
Total receipts......... $16,500,000

For simplicity, assume there were no trustee€™s fees or any other claims against the liquidation proceeds. Also, assume that the mortgage bonds are secured by the entire amount of fixed assets. What would each claimant receive from the liquidation distribution?
Kimberly MacKenzie, president of Kim€™s Clothes Inc., a medium-sized manufacturer of women€™s casual clothing, is worried. Her firm has been selling clothes to Russ Brothers Department Store for more than 10 years, and she has never experienced any problems in collecting payment for the merchandise sold. Currently, Russ Brothers owes Kim€™s Clothes $65,000 for spring sportswear that was delivered to the store just 2 weeks ago. Kim€™s concern was brought about by an article that appeared in yesterday€™s Wall street Journal that indicated that Russ Brothers was having serious financial problems. Further, the article stared that Russ Brothers€™ management was considering filing for reorganization, or even liquidation, with a federal bankruptcy court.
Kim€™s immediate concern was whether or not her firm would collect its receivables if Russ Brothers went bankrupt. In pondering the situation, Kim also realized that she knew nothing about the process that firms go through when they encounter severe financial distress. To learn more about bankruptcy, reorganization, and liquidation, Kim asked Ron Mitchell, the firm€™s chief financial officer, to prepare a briefing on the subject for the entire board of directors. In turn, Ron asked you, a newly hired financial analyst, to do the groundwork for the briefing by answering the followingquestions:

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Accounts payable Notes payable to banks Accrued wages Federal taxes State and local taxes Current assets Net fixed assets $40.0 5.0 10.0 5.0 0.3 0.5 0.2 16.0 3.0 0.5 Subordinated debentures 40 S 7.5 Curent liabilities First-mortgage bonds Second-mortgage bonds Total long-term deht Preferred stock Common stock Paid-in capital Retained earnings 13.0 2.0 5.5 21.5 Total equity Total claims Total assets 545.0 $45.0 The debentures are subordinated to the notes payable.