"Your cat likes milk?"
This sentence is a question. In this case the verb should come to the first place in the sentence (and not to the 2nd place as you wrote). So either: Mag deine Katze Milch? (Informal you) or: Mag Ihre Katze Milch? (formal you) or Mag eure Katze Milch (plural you) It's not an easy sentence, because the original english question is also wrong. It should be DOES your cat like milk? If they wrote it like this this, it would have been easier to recognise.
I understand tha the verb should be first: Mag deine K...or Mag Ihre K...or Mag eure K... BUT the answer given as correct is: Ihre Katze mag Milch? with the verb AFTER the subject which is just like the Enlish given. And of course the Eng. is awful.