Heat oven to 350°F. Line cookie sheet with parchment paper. Draw 11-inch circle on paper. Turn paper over so mark is on underside; line will show through.
Sprinkle 2 tablespoons of the flour on work surface. Shape 1/3 of the cookie dough into ball; press into flour. Keep remaining dough refrigerated. Press dough to form 8-inch round, turning and coating with flour frequently. Place in center of circle on paper-lined cookie sheet. Roll to form 11-inch round, about 1/4 inch thick. If necessary, trim uneven edges. Cut 4-inch round from center; remove smaller dough round and set aside for cut-out cookies.
Bake wreath at 350°F. for 7 to 9 minutes or until light golden brown. Remove from cookie sheet; place on wire rack. Cool 10 minutes or until completely cooled.
Meanwhile, roll half of remaining dough on floured surface to 1/4-inch thickness. With 1 1/2 to 3-inch Christmas cookie cutters, cut out shapes. Place on ungreased cookie sheets. Repeat with remaining half of dough, dough scraps and flour.
Bake shapes at 350°F. for 7 to 9 minutes or until light golden brown. Remove from cookie sheets; place on wire racks. Cool 10 minutes or until completely cooled.
In small bowl, blend powdered sugar and enough water for desired spreading consistency. Divide frosting into small bowls; add food color as desired. Frost and decorate cookies as desired. With dabs of frosting, attach 1/2 of the cut-out cookies to cookie wreath, allowing 1 layer to set before adding another layer. Place remaining cookies on serving plate; serve with wreath.