Place all ingredients except sugar in machine. Program for knead and first rise and press start. The dough will be sticky at first but will hold its shape. After the final cycle, it will be workable. When dough is finished, turn the dough out onto a floured surface and let it rest for 10 minutes. Roll the dough to a generous 1/4" thick and cut it into 2" squares.
Cover the squares with a clean towel and let rise for 30 minutes. Add the powdered sugar to a medium-size clean paper bag. Lay out paper towels to drain the doughnuts. Heat 1 to 1 1/2 " of oil to 375Ã¸F. Do not add too many; add once or it may cool the oil too much. Gently brush the uncooked squares to remove any extra flour. Slide them into the heated oil. When they pop to the surface, spoon the hot oil over them constantly until they are puffed. Turn the squares and cook until they are a light golden color on both sides. It should take 1 to 2 minutes. Cut the first couple of squares in half to be sure there is not sticky uncooked dough inside.
Remove from hot oil with slotted spoon and drain on paper towels. While warm, drop them, 3 or 4 at a time, into the bag with powdered sugar and shake until they are well coated. Serve immediately.