To defeat Man-Ray, wait until he jumps onto one of those gray boat-things. Then use the waterball panel and shoot at the balloon thats on the side Man-Ray is. (Don't shoot them while he's on the wooden board. It won't do anything, except waist your time.) Then he will jump onto the platform your one. Quickly, while he's on there, shoot a waterball at him. He will lose a bit of health and will start at square one. Repeat process until he dies.
After you gave Squidward his package from Officer Nancy, Spongebob will have to feed Gary, his pet snail. Get a can of food from the cupboard in his house, which is in the downstairs. Go upstairs, then go to gary's food bowl. Press circle there and start shaking it. When it's all out, a key should be in the bowl. Pick it up. You can use this item to open the Krusty Krab!