1. Combine flour, baking powder and salt in bowl.
2. Beat butter, sugar, egg and lemon extract in large bowl until light and fluffy, about 3 minutes. Stir in flour mixture. Divide dough in half. Flatten each half into 6-inch disk. Wrap in plastic wrap; chill at least 2 hours.
3. To bake, heat oven to 350 degrees F. Coat baking sheets with cooking spray.
4. Lightly flour dough. Roll half of dough between waxed paper to 1/4-inch thickness. Using cookie cutters, cut out animals and small stars. Reroll scraps; cut out. Place cookies, 1 inch apart, on baking sheets. Repeat with remaining dough.
5. Bake in 350 degrees F oven 10 to 12 minutes, until lightly golden around edges. Cool cookies on baking sheet on wire rack for 5 minutes. Remove cookies to rack to cool completely.
6. Prepare icing. Stir in extra water, drop by drop, for good flowing consistency. Divide into batches; tint with different color. Spread over cookies. Dip into colored sugars. Let stand until dry and hardened.Royal Icing:
7. Using packaged meringue powder, prepare 1 recipe Royal Icing according to package directions. Makes 3 to 4 cups. Meringue powder available in stores where decorating supplies are sold.