1. The Big company spent $1,000,000 to obtain a 25% stake in Little. At that date, the net book value of Littles assets and liabilities was $3,900,000. Little also had machines with remaining lives of 4 years, which had a fair value in total $100,000 higher than their book values. Big accounts for its investment under the equity method. Which of the following is correct?
   1. Each year, Big will record its 25% share of Littles income, and will make no special adjustment related to these machines.
   2. Each year, Big will record its 25% share of Littles income, and will also make an adjustment for its 25% share of $25,000 of extra equipment depreciation for the next four years.
   3. Little will change its books, and will increase the carrying cost of the machines, and also the depreciation. Big will then record its 25% share of the income of Little, as computed under this new basis.