This sentence 1 option agrees with the fact that children are imaginative: Fancy it having been wet sea here once, all sloppy and shiny,' said Jane, 'with fishes and conger-eels and coral and mermaids.
This means that the children most of the times would often go beyond what they are shown and told to paint a different world pof their own.
The child here is imagining mermaids and other forms of creatures including coral.
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