[thecomm123]

I have an S Corp that is a 100% owner in an LLC (which is taxed as an S corp). I am preparing the taxes for the companies and have run into a problem. I have given the S corp the k-1 from the llc and put the $'s into "other income" (Income section, line 5 1120s schedule). However, in filling in the other required information for taxes the software (turbo tax) says my M-1 schedule is off by the amount of the "other income". How do I account for the subsidiary in my S corp "books"? I do not have the LLC on my S Corp books. There was no money paid for it.

[ArcSine]

It sounds like you're saying the income from the sub to the parent was "on paper" only -- it's on the K-1, but there was no cash moving from sub to parent for this income. Thus, you haven't booked anything on parent's books yet.

If that's the case, then generally you'd put on the parent's books an entry to debit "Investment in Subsidiary" and credit an "Income from Subsidiary" account, or something similarly named. The debit is to a balance sheet account, and the credit is a P & L account. The dollar amount of the entry is the K-1 income amount.

If nothing was paid by parent for the subsidiary, and hence the parent doesn't currently have any asset on its balance sheet for this ownership of the sub, then the above entry will be the first item into this new account.