Regarding merbabies, if there are any potential ones at the end of the challenge do we just ignore them in the count or can we fast forward (with no other gameplay) to determine their life state?
You are correct that a merbaby's life state cannot be determined until the toddler stage.
Once you've reached the end of the challenge period, save your game.
Then you can go around checking any necessary households.
For potential merkids, it's faster to simply age them up from the bassinet rather than fast-forwarding through the two-day nooboo stage.
No early age-ups until you've played to the end of your challenge, though.