Final answer:
The adjusting journal entry for Gizmo Inc.'s prepaid insurance would debit Insurance Expense and credit Prepaid Insurance for $450, reflecting the cost of insurance used from October 1 to December 31.
Step-by-step explanation:
The question pertains to an adjusting journal entry for prepaid insurance in accounting. Gizmo Inc. purchased a one-year insurance policy on October 1 for $1,800, and the adjusting entry on December 31 would involve recording the expense for the three months of coverage that have been used up by this date, from October 1 through December 31. Since the insurance policy covers a one-year period, the monthly insurance expense is $150 ($1,800 divided by 12 months).
For the three months from October to December, the total expense would be $450 (3 months x $150 per month). Therefore, the adjusting entry on December 31 would debit Insurance Expense for $450 and credit Prepaid Insurance for $450, recognizing the insurance cost for the period that has passed.