USA Intercompany Accounting - Interunit Markup

[Chris C]

Good Afternoon All,
Im having trouble understanding the concept of Interunit Markup and the journal entry that accompanies the transaction.

FC Co. sells a package to RS. RS will be placing this equipment on a product that will be sold to a 3rd party
Cost of the equipment to FC Co. is $1,000k
Selling price to RS is $1,500k
Selling price to 3rd Party is $1,800k

FC Journal Entry (selling)
COGS I\C 1,000
Inventory 1,000

IC Receivable 1,000
InterUnit MU 500
Revenue I\C 1,500


RS Journal Entry (Purchasing)
Inventory 1,000
IC Payable 1,000


After looking at this scenario, above is the entry that I have come up with. Can anyone provide me guidance as to if it is correct?
From my understanding, the 500 InterUnit MU item is needed to keep the sale as an “arm’s length” transaction. And will be cleared in the future by an Interunit Clearing entry, but I am not sure how the clearing entry should be posted.
I appreciate the help of anyone who can offer it.

 

[kirby]

I would book things this way:

FC Journal Entry (selling)
COGS I\C 1,000
Inventory 1,000

IC Receivable 1,500
Revenue I\C 1,500


RS Journal Entry (Purchasing)
Inventory 1,500
IC Payable 1,500

Why?
RS paid $1,500 and not $1,000 so we need to reflect $1,500 in RS's journal entry

For FC, it has a $1,500 receivable and not $1,000

I