The bones are definately missing...Im stuck on level 3 of this one, my puddle will not turn into a mushroom in enough time to complete. Sometimes it never turns before time is up. Super frustrated. Im convinced this level is broken.
Scatter a pile of bones and then merge them to dead land bones. Then start merging other dead lands with objects that match, it usually has one object that is healed.
If you like watching videos on Youtube, I recomend "Toasty Gamer Boutique". She has a video about almost all levels and challenges on Merge Dragons and Merge Magic. Every time I get stuck on a level, I check her videos to get some ideas.