Final answer:
The statement in the question is false; companies must recognize a loss on an unprofitable contract under both the percentage-of-completion and completed-contract method as soon as the loss is foreseeable.
Step-by-step explanation:
The statement that companies must recognize a loss on an unprofitable contract under the percentage-of-completion method but not the completed-contract method is false. Under the percentage-of-completion method, revenue and expenses—and thus profit or loss—are recognized as the work is completed, even if the contract is overall unprofitable. This method provides a better matching of revenues with expenses during the period in which they are incurred, reflecting the economic progress of the project.
Contrastingly, the completed-contract method defers all revenue and expense recognition until the project is fully completed. However, if at any point the contract is estimated to be unprofitable, a provision for the entire estimated loss must be recognized immediately in the company's financial statements. Therefore, both methods require the recognition of a loss if a contract is deemed unprofitable before its completion.