My wife has a 2014 Ford Escape with a 2.0 Ecoboost ended up over heating on her and she had it towed to a local mechanic shop.

Their notes: "Engine over heat code present - check coolant level and system is completely empty, fill cooling system and install pressure tester, no coolant leaks found, run engine to operating temperature and noticed coolant bottle bubbling and building pressure of 20 psi. Install combustion gas tester on coolant bottle and instantly turns yellow due to combustion gas in cooling system. Recommend replacing engine."

From their notes my conclusion is that the head gasket needs to be replaced and I don't understand the need to replace the entire engine. The car only has 130,000 KM (80,000 miles) and it has never had any major issues in the past or never skipped a beat for that matter. Any thoughts would be appreciated. Thanks

 

Sometimes the cost of the labor to replace a head gasket comes close to the cost to replace the engine.
If the vehicle is in great shape only you would know if you want to keep a lot longer. If that is the case, a replacement engine might be worth it.

Overheating can do damage that may not be apparent until disassembled. Now you have addl cost for repair.could have burned valves, warped head.
There are considerations to consider when installing a rebuilt head on an 80,000 mile engine.
If circumstances ($$$) permit, it might be a good move to install a REMANUFACTURED engine. Better warranty than for a rebuilt engine. Last resort could be a salvage yard engine, and all they can tell you is it ran when it came in.
I'm sure I didn't cover all the possibilities and second and third opinions are always in order.