Your understanding is not correct. Income in box 7 of Form 1099-MISC is self-employment income. A child's self-employment income cannot be reported on the parent's tax return. She has to file her own tax return and report all of her income on her own return. Since she has self-employment income of more than $400 she is required to file a tax return. You can still claim her as a dependent on your tax return (if she meets all the requirements). When she prepares her tax return, make sure she checks the box that indicates that someone can claim her as a dependent.
