I am sorry for the passing of your grandmother.
The IRS definition of a hardship is specific and is requested from your employer at the time of the withdrawal. Generally, you would demonstrate a hardship need to your employer and they would approve the distribution according to plan rules. If you received a 1099-R, enter it as it is reported as this form is also issued to the IRS.
Although hardship withdrawals are permitted for funeral expenses for you, a spouse, or your dependent, there is no exception to waive the penalty for those expenses. See@dmertz comment below
[edited 1/23/17]
https://ttlc.intuit.com/questions/1901285-can-i-make-a-hardship-withdrawal-from-my-401-k
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-hardship-distributions#2
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