Not sure if I'm mixing elements of several movies or not, but I recall a movie from VHS about a kid who befriends a spirit who is in a dummy (or may be some sort of troll/monster spirit) - can't remember clearly. Not the movie Making Contact. I remember the last scene an evil force possesses a suit of knight's armor in a basement/attic and attacks the boy protagonist, and the dummy/troll protects child. I think there were special effects, red lazers.

Sounds like Ghost Chase (http://www.imdb.com/title/tt0093201/)

OMG yes, that's it! I just youtubed the scene I was talking about. Thank you so much!

You're welcome.