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CITY OF PARIS, TEXAS Notes to Financial Statements (Continued) September 30, 2025 I. Summat of Si l ificant Accountmg,Policies (Continued) G. Assets, Liabilities, Deferred Outflows/Inflows of Resources, and Net Position/Fund Balance (Continued) 2. Investments Investments are reported in the accompanying balance sheet at fair value with changes in fair value being reported as part of investment income. The City and PEDC hold investments in two external investment pools, Texas CLASS and LOGIC. Both investment pools carry investments at amortized cost, which approximates fair value. Investments are priced daily and compared to the carrying value. If the ratio of the fair value of the portfolio of investments to the carrying value of investments is less than .995 or greater than 1.005, the investment pools will sell investment securities, as required, to maintain the ratio at a point between 995 and 1.005. Participation in external investment pools is voluntary. Statutes authorize the City and PEDC to invest in obligations of the U. S. Treasury, direct obligations of the State of Texas, other obligations guaranteed or insured by the State of Texas or the United States, obligations of states and political subdivisions of any state meeting certain rating requirements, certificates of deposit, and fully collateralized direct repurchase agreements having a defined termination date. The City did not engage in repurchase or reverse repurchase agreement transactions during the current year. In accordance with generally accepted accounting principles, inputs to valuation techniques used to measure fair value are prioritized according to a fair value hierarchy, as follows: Level I — Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level II — Fair values are based on generally indirect information such as quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active. Level III — Fair values are based on inputs other than quoted prices included within Level I that are unobservable and include the City's own assumptions about pricing. This fair value hierarchy gives the highest priority to Level I inputs and the lowest priority to Level III inputs. The City's investments are classified in Level II of the hierarchy. 3. Inventories Inventories are valued at cost using the first -in, first -out method. Inventories of governmental funds are recorded as expenditures when consumed rather than when purchased. An equivalent amount is reported as nonspendable fund balance in the governmental funds. 4. Prepaid Items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government -wide and fund financial statements. The cost of prepaid items are recorded as expenditures/expenses when consumed rather than when purchased. 34