I have spent the last week or so mulling over this exact same issue! I have come to the following conclusions:

#1) it depends if company 2 is filing their return on a cash basis or accrual basis. Generally, I would think if Co #1 is filing on a cash basis, the Partner co is also filing on a cash basis. If this is the case, the book/tax difference would not be reported as income on the return.

#2) Are the books of Co #2 kept on an accrual or cash basis? If they are kept on an accrual basis, the book/tax difference should be recorded to the books. If this has been done correctly in the past, the asset 'Investment in Co #1' on the balance sheet should equal the ending capital account in Part 1, Box L of the K-1 unless...

#3) They have had different accountants in the past and each booked it differently (this is my issue) - If Co 2 only has K-1's flowing through, it really shouldn't matter if the books are kept on an accrual or cash basis. In my case, I requested the client to make the decision on how they want to keep the underlying books and DOCUMENT, DOCUMENT, DOCUMENT!

#4) One other issue you may not have run into is how the Partners capital account analysis is reported as being calculated (Box L--Tax basis, GAAP etc). In my case the K-1's came thru as having been calculated on a Tax basis. As the current year increase/decrease correlated to the amount including the book/tax difference, the GAAP basis box should have been checked. Also be sure you report the correct basis of calculating Partner capital account analysis for any K-1's going out of Co #2.

Hope this helps!
K