Instructions:

Begin by reviewing the tax return scenario below. Then, prepare the 2016 fiduciary income tax return (Form 1041) for the Lawrence Trust. In addition, determine the amount and character of the income and expense items that each beneficiary must report for the year, and prepare a Schedule K1 for David Lawrence. Omit all alternative minimum tax computations.

TAX RETURN SCENARIO The years activities of the trust include the following:

Dividend income, all U.S. stocks $62,500 Taxable interest income 12,500 Tax-exempt interest income 18,750 Fiduciarys fees 5,000

The trust and David both use the calendar tax year. Under the terms of the trust instrument, fiduciarys fees are allocated to income. The trustee must distribute all of the entitys accounting income to David Lawrence by February 15 of the following year. The trustee followed this charge and made no other distributions during the year. Fiduciarys fees properly were assigned as an offset to taxable interest income.

The trust was created on March 19, 2000. There are no tax credits for the year, and none of the entitys income was derived from a personal services contract. The trust has no economic interest in any foreign trust. Its Federal identification number is 11-1111111.

The trustee, Johnson State Federal Bank, is located at 9594 President Road, Manhattan, NV 89022. Its employer identification number is 98-3456789. David lives at 17676 Gulch Road, Hawthorne, NV 89415. His Social Security number is 987-65-4321