I have no problem with making guns for kids. I learned to shoot as a young child, as did my siblings, and my in-laws. Building guns that fit a child's shorter arms is fine. A kid who grows up shooting and learning proper safety practices will be safe as an adult as well. I've seen plenty of adults (go find pictures of some of our politicians crusading against guns for some examples) who were downright scary with a gun because they had no idea how to handle one because they were never taught. It's easier to teach a child than an adult.
The problem here isn't the existence of such a gun; the problem is giving a 5-year old their own gun. Even more of a problem is the fact that the gun was sitting in the corner with a bullet in it. There are two major problems right there and that's what these parents should be brought up on charges for. If a parent buys a gun for their kid, it is absolutely incumbent upon them to store the gun properly and never have it anywhere the kid can get access to it without adult supervision and the kid absolutely must be taught and be able to demonstrate proper safety practices before the gun is ever loaded.