Apple was able to duplicate the issue and a solution is forthcoming. Will update this thread as soon as I have new info.

Great news! Apple was able to duplicate the issue and a solution is forthcoming. Will update as soon as I have new info.

I think I will test this on my shiny new MacBook Pro. If it fails there as well, then that’s 3 for 3

Unbelievable. Since I've gotten an unsatisfactory answer by the Feedback group I filed a TSI for this. The TSI group responded that I should use Feedback reports to file a potential bug! I informed them that I already did file a bug report, and that the feedback group's conclusion was that, based on the diagnostics data I provided they could not find anything wrong. I still 100% suspect that they did not try to run the sample program which I've tried on 2 separate macs which confirmed that Xcode 12.5's WatchOS 7.4 simulators receive app context is broken. Stay tuned

@cgaafary, That is exactly what I've observed. Application context transfers work from WatchOS simulator to iOS simulator, but not the other way around. This appears to be such an obvious, highly repeatable bug that I'm shocked that Apple let this slip through. Regardless filing the bug report was a 100% waste of time, since Apple said they can't duplicate the issue. Looks like I will be opening a TSI for this. Will keep you all posted.

..And now of course, Xcode 12.5 is no longer in beta, but the issue is still there. This shows how few developers are using the WatchOS 7.4 simulator on Xcode 12.5. I guess most of the WatchOS developers are doing development/debugging on physical watch devices. You are quite fortunate!

Still no answer on this issue. I see that it's happened to another developer as well. I've verified this issue on 2 different iMacs, an iMac Pro and a Mac Mini. Apple asked me to submit sysdiagnose reports about the Mac and the 2 simulators in question. Hopefully they'll have an answer soon. Please ignore the answer marked as the solution, since that was an error, and I can't un-select it.

The answer is YES. Simply run "xcrun simctl diagnose". If you have more than 1 simulator that is active (e.g.: iPhone simulator and Watch simulator), then simply provide the udid of the simulators as such: "xcrun simctl diagnose --udid=simulator udid" Thanks

In order to determine what is wrong, Apple is asking me to run sysdiagnose on all devices involved. However, aside from my mac mini, all other devices involved are simulators. Can one run sysdiagnose on a simulator for iOS and WatchOS?

@Ebrimajallow99, I'm running the latest Mac OS X, 11.3.1. That is not the issue

I filed a bug report for this. hopefully it will be resolved soon.