Once you have gotten to the point where the three kids go to their separate timelines, you can pick up the Red Paint and Booboo-B-Gone.
The Red Paint can be picked up by Hoagie (guy with the backwards cap in colonial times). Send him to the attic of the inn where you will see a cat playing with a toy. Directly behind Hoagie is the Red Paint.
The Booboo-B-Gone (I believe it's like White-Out or liquid paper) can be picked up by Bernard (kid with glasses in the present). From the main lobby (where you start the game), open/go through the door with the OFFICE sign on it behind the counter, left of the grandfather clock. Once in the office, open the Desk drawer to reveal the Booboo-B-Gone.
Open your inventory with either character, click the item they have, then click the other character to give it to them. Then, open the inventory again, click one of the items and use it with the other item.
In my game, I had Bernard as my active character. I opened the inventory, clicked on the Booboo-B-Gone, then clicked on Hoagie. You should hear a flushing sound, meaning that the characters automatically run to the Chrono-John and flushed the item to each other. I opened the inventory again and clicked on Hoagie to make them my active character. I opened the inventory one last time, selected the Red Paint, then the Booboo-B-Gone to try to mix the two.
Hoagie commented "I don't like pink." while the achievement popped.
If you see a way to improve this guide or want further clarification, leave a comment! Thanks!