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1. Cream together the sugar, butter and cream cheese in the bowl of a large mixer until fluffy. Beat in the egg yolk.
2. Stir in the flour, walnuts, salt and lemon peel. Refrigerate, covered, at least 2 hours.
3. Preheat oven to 350 degrees. Shape about 1 tablespoon of the dough into a log about 1 inch long. Place on ungreased baking sheets; repeat with the remaining dough.
4. Bake until light brown, about 12 to 14 minutes. Let cool on the sheets about 2 minutes before transferring to racks to cool.
5. Melt the chocolate in the top of a double boiler over hot water. Transfer to a smaller bowl for dipping. Stir a few minutes until cooled a bit.
6. Dip ends of cookies into the melted chocolate, then into decorating sprinkles. Place on racks until set.
7. Store the cookies between layers of wax paper in airtight containers at roon temperature no longer than 10 days or freeze no longer than 3 months.
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