Dan if I understand you right your entering child records but selecting from a dropdown and if its not there you want to add a new one ?
I have a similar functionality for adding new childs but the basic screen is
TABLE OF CHILD RECORDS
ADD CHILD RECORD
You should be able to add a new parent record menu option to that screen OR to include the ADD NEW PARENT screen itself as a modal popup. The only painful task is getting it to resort as the redraws etc don't resort automatically.
On the first screen I display a table of all DEBTORS on the system with an EDIT function and an ACTIONS function as links within the table. If the Debtor doesn't exist there is a Add New Debtor Button at the bottom (linked to a modal popup).
On the 2nd screen the debtor data is displayed with all the corresponding Child records and at the bottom allows for entry of anew child record againt that Debtor (parent)