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CITY OF PARIS, TEXAS <br />Notes to Financial Statements (Continued) <br />September 30, 2021 <br />I. Summary of Significant Accounting Policies (Continued) <br />G. Assets, Liabilities, and Equity (Continued) <br />2. Investments (Continued) <br />approximates fair value. Investments are priced daily and compared to the carrying value. If the ratio of the <br />fair value of the portfolio of investments to the carrying value of investments is less than .995 or greater <br />than 1.005, the investment pools will sell investment securities, as required, to maintain the ratio at a point <br />between .995 and 1.005. Participation in external investment pools was voluntary. <br />Statutes authorize the City and PEDC to invest in obligations of the U. S. Treasury, direct obligations of the <br />State of Texas, other obligations guaranteed or insured by the State of Texas or the United States, <br />obligations of states and political subdivisions of any state meeting certain rating requirements, certificates <br />of deposit, and fully collateralized direct repurchase agreements having a defined termination date. The <br />City did not engage in repurchase or reverse repurchase agreement transactions during the current year. <br />In accordance with generally accepted accounting principles, inputs to valuation techniques used to <br />measure fair value are prioritized according to a fair value hierarchy, as follows: <br />Level I — Fair values are based on unadjusted quoted prices in active markets for identical assets or <br />liabilities. <br />Level 11 — Fair values are based on generally indirect information such as quoted prices for similar <br />assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in <br />markets that are not active. <br />Level III — Fair values are based on inputs other than quoted prices included within Level I that are <br />unobservable and include the City's own assumptions about pricing. <br />This fair value hierarchy gives the highest priority to Level I inputs and the lowest priority to Level III <br />inputs. The City's investments are classified in Level It of the hierarchy. <br />3. Inventories <br />Inventories are valued at cost using the first -in, first -out method. Inventories of governmental funds are <br />recorded as expenditures when consumed rather than when purchased. An equivalent amount is reported as <br />nonspendable fund balance in the governmental funds. <br />4. Restricted Assets <br />Prior to the issuance of General Obligation Refunding Bonds, Series 2010, the City's Water and Sewer <br />Revenue Bonds and Certificates of Obligation covenants required certain restrictions of net assets. After the <br />refunding occurred, these legal restrictions no longer existed. In order to safeguard the financial integrity of <br />the water and sewer system, the City Council approved a resolution establishing and maintaining funds <br />comparable to those required by the refunded bonds. <br />5. Capital Assets <br />Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, <br />sidewalks, and similar items) are reported in the applicable governmental or business -type activities <br />columns in the government -wide financial statements. Capital assets are defined by the government as <br />assets with an initial, individual cost of more than $10,000 and an estimated useful life in excess of two <br />years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. <br />31 <br />