In APA, if you source looks like this:
For over 20 years, attention deficit hyperactivity disorder (ADHD) has been viewed as comprising three primary symptoms, these being poor sustained attention, impulsiveness, and hyperactivity (American Psychiatric Association [APA], 1980, 1987; Barkley, 1981; Douglas, 1972, 1983).
and that source is:
Barkley, R. A. (1997). Behavioral inhibition, sustained attention, and executive functions: Constructing a unifying theory of ADHD. Psychological Bulletin, 121(1), 65–94. doi:10.1037/0033-2909.121.1.65
then you include the references given in the source when you cite from it:
According to Barkley (1997), ADHD "has been viewed as comprising three primary symptoms, these being poor sustained attention, impulsiveness, and hyperactivity (American Psychiatric Association [APA], 1980, 1987; Barkley, 1981; Douglas, 1972, 1983)", while according to ..."
but in your list of references you only list the source that you have read and used, which (in this example) is Barkley (1997). You do not list the sources that that author has used (and you haven't).
So what you do is your option 2.
If your source is well written, it should be clear what parts of it a reference applies to. Usually, if the reference is at the end of the sentence, it applies to the whole sentence (as in my example above). If it is in the middle of the sentence, it applies to the part of it that comes before it. In the following example, the first reference is the source for the prevalence of ADHD among children:
ADHD has a prevalence of around 5% among children (Someone, 2013) and 2.5% among adults (Someoneelse, 2007).
In the following example, the reference is to a single word:
The procedure or "process" (Gross, 1998) of ...
To paraphrase Churchill...
english.stackexchange.com/a/69954/62225