The squirrel can be found in the tree directly north west of the village once you have obtained the world map. Similar to the frog mini-game in the original, the squirrel will ask you various riddles in return for rewards.
1. Do you really like candies? A: Yes, the answer is yes ;D
2. What is the next letter in this sequence? "S, E, I, D, N, A" A: C
3. How many candies does the candiest person in the world possess? A: Your current amount of candies.
4. Marks on the tree A: 10, it's the marks on this tree! (or alternatively: all numbers are 10*6^x)
5. If I throw my yellow hat into the sea, what happens to it? A: Floats / wet
6. Play Tic tac toe. A: Click outside the box in the top-left or bottom left for the third X you need to complete a row without being blocked.
For completing this, you get several candies, lollipops, and chocolate. On top of that, the squirrel also rewards you with a key to the third house in the village.