The $4,500 balance in Prepaid Insurance represents the premium paid in advance for a three-month liability insurance policy. Assuming that 2 months of premium has now expired, the adjustment would be recorded in the work sheet as a:

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The adjustment would require recognizing the portion of the prepaid insurance that has now expired as an expense. Since 2 out of 3 months have expired, the portion of the insurance expense that should be recognized would be 2/3 of the total prepaid amount. This would be calculated as $4,500 x (2/3) = $3,000, which would be recorded as a debit to Insurance Expense. The remaining balance of the Prepaid Insurance account would be $4,500 - $3,000 = $1,500, which would be credited to reflect the portion of the premium that is still prepaid. Therefore, the correct answer is D, debit to Insurance Expense, $3,000.

The $4,500 Balance in Prepaid Insurance Represents the Premium Paid