Treeton Inc. had net income for the fiscal year ended June 30, 2020, of $5 million. There were 500,000 common shares outstanding throughout 2020. The average market price of the common shares for the entire fiscal year was $50. Treeton's tax rate was 25% for 2020. Treeton had the following potential common shares outstanding during 2020: 

1. Options to buy 100,000 common shares at $45 per share. 

2. 100,000 convertible preferred shares entitled to a cumulative dividend of $10 per share. Each preferred share is convertible into 1.5 common shares. 

3. 4% convertible bonds with a principal amount of $30 million, issued at par. Each $1,000 bond is convertible into 25 common shares. 

Instructions 

For the fiscal year ended June 30, 2020, calculate the following for Treeton Inc. Round to the nearest cent. For simplicity, ignore the requirement to record the debt and equity components separately. 

a. Basic earnings per share 

b. Diluted earnings per share 

Use the three-step process in arriving at your answers. Describe each step as you proceed to the final answer.