Entities taxed as partnerships track the equity of their owners using a(n) ______ for each owner.

• A. common stock account
• B. retained earnings account
• C. dividends payable account
• D. capital account

Answer: (D)

Verified step by step guidance

1. Understand the concept of partnerships: Partnerships are business entities where two or more individuals share ownership. Unlike corporations, partnerships do not issue common stock or track retained earnings in the same way.
2. Learn about equity tracking in partnerships: Partnerships use capital accounts to track the equity of each owner. A capital account reflects the owner's contributions, share of profits or losses, and withdrawals.
3. Eliminate incorrect options: Common stock accounts are used in corporations, not partnerships. Retained earnings accounts are also specific to corporations, representing accumulated profits. Dividends payable accounts track dividends owed to shareholders, which is irrelevant for partnerships.
4. Focus on the correct option: The capital account is the appropriate choice for partnerships because it directly tracks the financial relationship between the partnership and each owner.
5. Apply this knowledge to the problem: Recognize that the correct answer is 'capital account,' as it aligns with the way partnerships manage owner equity.