Answer:
1. He <em>was talking</em> with Mary, when Mrs. Smith came in.
2. They <em>studied</em> two hours last night.
3. Jane <em>was sleeping</em> when the telephone rang.
4. As I <em>was walking</em> to the lab, I met my friend.
5. We <em>watched</em> TV last night.
6. The customer <em>was paying</em> his cheque when he dropped his credit card.
7. The barber <em>cut</em> my hair yesterday.
8. She<em> was dancing</em> when she hurt her ankle.
9. It <em>was raining</em> hard when I got up.
10. It <em>rained</em> hard last night.
Explanation:
Past Simple or Past Indefinite:
This tense is usually used when the sentence has an adverb of past tense, e.g last ----- , yesterday, ago.
The sentences No. 2, 5, 7 and 10 all have adverbs of past tense i.e yesterday or last.
Past Continuous:
We use this tense when talking about some event of past, that was taking place or happening at that specific time.
We also use Past Continuous tense when some event was already taking place or in the process, and some other even took place at that time. However if some event had already taken place some other event in the past, we use Past Perfect. Since there is no option to use Past Perfect Tense in this question, we can safely use Past Continuous Tense in sentences No. 1, 3, 4, 6, 8 and 9.