From the Super Mario Wiki
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To use it, the player first selects an object to be smashed by the hammer. Objects include:
The selected item is moved under the hammer. The player can press the button to smash. The alarm clock, piggy bank and diamond break into bits when crushed, while the clay Warp Pipe and Mushroom are simply flattened. Smashing the piggy bank reveals a coin amongst the pieces.
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