The short begins in an orphanage, where the orphans are all asleep, awaiting Christmas morning. Just then, the clock chimes, a puppy in the place of the cuckoo jumps out, slides down a ramp and licks on one of the orphans. The first orphan to wake shouts to the others, "Merry Christmas, everybody!" And all the orphans jump out of bed and head to the hall, singing the title song. They grab the toys from their stockings, and get ready to play with them. However, they discover that the toys are already broken and fall apart completely when played with. The children are traumatized and begin to cry.
Meanwhile, Professor Grampy is out riding through the snow in his motor-driven sleigh, singing the title song to himself. He soon hears crying from inside the orphanage, so he parks the sleigh, runs to the door and peeps through the window to see the orphans still sobbing and heading back to their bedroom. Grampy is discouraged and starts to think of a way to give the orphans a better Christmas. He puts on his thinking cap, and shortly, the light bulb on the cap blinks, meaning he has an idea. He sneaks in through the kitchen window and starts making new toys out of household appliances.
Finally, he dresses up as Santa Claus (with black stove pipes as the boots, a red table cloth as the jacket, a pillow for the weight, a strop as the belt, a picture frame as the buckle and a red purse as the hat), grabs a dinner bell, and surprises the orphans by ringing the bell and shouting, "Merry Christmas, everybody!" The orphans brighten up instantly, they all rush out excitedly to play with their new toys. Grampy completes the scene by making a Christmas tree out of green umbrellas. He decorates it, places it on top of a phonograph turntable, gathers all the orphans together and they all sing the title song one last time. As they sing, a giant Christmas Seal stamp appears on the screen, showing Santa Claus and a "Holiday Greetings" message.
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