Mix powdered sugar, margarine, vanilla, almond extract, and egg. Stir in remaining ingredients except granulated sugar. Cover and refrigerate at least 3 hours.
Heat oven to 375. Divide dough into halves. Roll each half 3/16 inch thick on lightly floured cloth covered board. Cut into desired shapes with cookie cutters. Place on lightly greased cookie sheet.
Mix egg yolk and 1/4 teaspoon water. Divide mixture among several custard cups. Tint each with different food color to make bright colors. Paint designs on cookies with small paint brushes. Bake 7 to 8 minutes and edges are light brown. After removing from oven, sprinkle granulated sugar on them.