Stock Adjustment Account is debited with . . . . . . . . and credited with . . . . . . . .

Answer: Option B

The correct answer is Option B: shortage of stock, surplus.
Let's break down why:
Stock Adjustment Account: This account is used to reconcile discrepancies between the physical stock on hand and the stock records.
Shortage of Stock: When the actual stock is less than what the records show, it means there's a loss. We debit the Stock Adjustment Account to recognize this loss.
Surplus of Stock: When the actual stock is more than what the records show, it means there's an excess. We credit the Stock Adjustment Account to recognize this gain.
Think of it this way:
* Debit entries often represent increases in expenses or decreases in assets/income.
* Credit entries often represent decreases in expenses or increases in assets/income/liabilities.
Therefore, a shortage (loss) is debited, and a surplus (gain) is credited to the Stock Adjustment Account.