xargs split at newlines not spaces

Try:

printf %b 'ac s\nbc s\ncc s\n' | xargs -d '\n' bash /tmp/test.sh

You neglected to quote the \n passed to -d, which means that just n rather than \n was passed to xargs as the delimiter - the shell "ate" the \ (when the shell parses an unquoted string, \ functions as an escape character; if an ordinary character follows the \ - n in this case - only that ordinary character is used).

Also heed @glenn jackman's advice to double-quote the $@ inside the script (or omit the in "$@" part altogether).

Also: xargs -d is a GNU extension, which, for instance, won't work on FreeBSD/macOS. To make it work there, see @glenn jackman's xargs -0-based solution.

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Note that I'm using printf rather than echo to ensure that the \n instances in the string are interpreted as newlines in all Bourne-like shells:
In bash and ksh^[1], echo defaults to NOT interpreting \-based escape sequences (you have to use -e to achieve that) - unlike in zsh and strictly POSIX-compliant shells such as dash.
Therefore, printf is the more portable choice.

^{[1] According to the manual, ksh's echo builtin exhibits the same behavior as the host platform's external echo utility; while this may vary across platforms, the Linux and BSD/macOS implementations do not interpret \ escape sequences by default.}

On Mac OSX

For simple cases that have a known number of args, tell xargs how many args to send to each command. For example

$ echo "1\n2\n3" | xargs -n1 echo "#"
# 1
# 2
# 3

When your input args are complex, and newline terminated, a better method is:

$ echo "1\n2 3\n4 5 6" | xargs -L1 echo  "#"
# 1
# 2 3
# 4 5 6

There is a probem here, can you see it? What if our input line contains a single quote:

$ echo "1\n2 3\n4 '5 6" | xargs -L1 echo  "#"
# 1
# 2 3
xargs: unterminated quote

xargs does not like single quotes unless you use the -0 flag. But -0 and -L1 are not compatible, so that leaves us with:

$ echo "1\n2 3\n4 '5 6" | tr '\n' '\0' | xargs -0 -I{} echo "#" {}
# 1
# 2 3
# 4 '5 6

If you brew install findutils we can do a little better:

$ echo "1\n2 3\n4 '5 6" | gxargs -d\\n -i echo "#" {}
# 1
# 2 3
# 4 '5 6

But wait, maybe using xargs is just a bad tool for this one. What if we use the shell builtins instead:

$ echo "1\n2 3\n4 '5 6" | while read -r; do echo "# $REPLY"; done
# 1
# 2 3
# 4 '5 6

For some more thoughts about xargs vs while checkout this question.