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Children are being presented with augmented reality (AR) in different contexts, such as education and gaming. However, little is known about how children conceptualize AR, especially AR headsets. Prior work has shown that children's interaction behaviors and expectations of technological devices can be quite different from adults’. It is important to understand children's mental models of AR headsets to design more effective experiences for them. To elicit children's perceptions, we conducted four participatory design sessions with ten children on designing content for imaginary AR headsets. We found that children expect AR systems to be highly intelligent and to recognize and virtually transform surroundings to create immersive environments. Also, children are in favor of using these devices for difficult tasks but prefer to work on their own for easy tasks. Our work contributes new understanding on how children comprehend AR headsets and provides recommendations for designing future headsets for children.