It's really more like a $75-100 bike that you got for $5.00. If it was really clean you could probably pull $125 within a month of posting.

I don't think I'd hack up a perfectly good stem for a franken-rig. You might be able to make it work as a shim if you split the stem where the expander from the inner stem is inserted but...

I'd just clean it up and sell it, then get another bike.

If that saddle height is offering proper pedal stroke then that bike is too big for your youngster. Probably needs a 13-14" frame.

But I reckon you could get a Trekking bar and allow him to grow into the bike. This one cuts reach by almost 4" I think, but there may be milder ones.