What would you expect the police to do?
Their is no law against letting a child hold a knife, snake, gun, drill, circular saw, etc.
I would not make that assumption.
Are you their parents? NO
Are you a relative? NO
Are you now the potential target of an investigation into why you're letting children play with firearms? YES.
The call would be "man waiving a gun around children."
The call might be "dead man formerly with gun around children," depending on the circumstances.
It sounds extreme - you betcha. I'm their parent and you (the hypothetic example, not you the poster) are now a potential threat.
You're making this sound like its no problem but I can think of all kinds of shades of bad resulting from it. The OP did the exact correct thing,
and should do nothing else except with the express approval of the parent.