MB7-702

From the Z80437_NAV2013_ENUS_CSSOL_01 training material (Yeah, due to fear of failure, I always study the excercise parts too... )

At the very minimum, all master data uses at least the general posting groups. General posting groups are one of several types of posting groups in Microsoft Dynamics NAV 2013. There are two types of general posting groups:
• General business posting groups that define the posting rules for the subjects of the transactions
• General product posting groups that define the posting rules for the objects of the transactions
When you design the master table, you must include either the Gen. Bus. Posting Group or the Gen. Prod. Posting Group field. You decide which one to include by first understanding how the master record is used. If the master record is the subject of your transactions (it represents who you are doing business with, such as customers or vendors), then select the Gen. Bus. Posting Group field. If the master record is the object of your transactions (it represents what you are operating with, such as items or resources), then select the Gen. Prod.Posting Group field.

So I would say Answer 1 as I suppose they mean by entity something like a customer or vendor.