With a large bowl and either a stand or hand held mixer, start by mixing the water and meringue powder together until a foam forms. 

Add in the powdered sugar and extracts and mix for about 2-3 minutes until the icing is fluffy and shiny. 

To thin the icing, use a water dropper, spray bottle, or 1 tsp at a time to add small amounts of water. At this point I usually mix by hand with a spatula. For flooding consistency (what I use for my cookies), drag the spatula across the top of the icing. If the icing doesn't go back to "flat" within 10 seconds, add more water. 

Separate the icing into different bowls and mix in food coloring. I prefer gel food coloring so that the consistency of the icing isn't messed up with liquid food coloring.