Salaam Samson,
You said:
which I think is common, is both illogical and doesn't make sense in the context of the other verses surrounding it. The interpretation is illogical because it doesn't make sense to make entire mankind to testify to something which now they no longer remember.
You are welcome to disagree, but may I first ask you what 'Bani Adam' means when used in the Quran and it is used a lot?
Secondly it is not illogical that a covenant is taken and we have forgotten about it because if we all remember then what is our test?
The taking of the covenant and testifying to the truth is what results in our 'fitrah' (primordial human nature) being born. That inherent nature is what instrinsically tells us what is right or wrong even if you are an atheist.
From our fitrah we either nurture it further to do good or descend into wrongdoing.
As with many words in the Quran you have to take a look at the context in which they are used. You seem to be ignoring the context of the verse.
First of all immediately after "bani Adam" it says "from their loins their descendants". Now if "bani Adam" referred to mankind then it doesn't make sense that the descendants of mankind were made to testify. Rather it should just be left as "bani Adam" and not be made more specific.
Secondly, in verse 7:173 it basically says that we can't use the excuse that we were just following the way of our fathers who had taken false gods.
"Or lest ye should say: "Our fathers before us may have taken false gods, but we are (their) descendants after them: wilt Thou then destroy us because of the deeds of men who were futile?"" - 7:173.
How we got our "fitrah" is mentioned in 82:7. We were simply given a just bias, it is part of God's design.
"Him Who created thee. Fashioned thee in due proportion, and gave thee a just bias;" - 82:7
To say that we took a covenant and then were made to forget the covenant is simply illogical. It breaks the purpose of taking a covenant as a covenant by definition is to be remembered. If God makes us forget the covenant then it would be grossly unfair to be accused of breaking something we had no idea we had taken.
Our test in this world is simply to see if we will conduct ourselves properly as stated in verse 18:7.
That which is on earth we have made but as a glittering show for the earth, in order that We may test them - as to which of them are best in conduct. 18:7
Iblis's goal is to divert us away from the path of God where we worship our desires by going after the things of this world/life. Note that in Quran it says that if you ask them who created the heavens and earth then they will say Allah. But even though they KNOW this they still worship other things.
If indeed thou ask them who it is that created the heavens and the earth, they would be sure to say, "Allah". Say: "See ye then? the things that ye invoke besides Allah,- can they, if Allah wills some Penalty for me, remove His Penalty?- Or if He wills some Grace for me, can they keep back his Grace?" Say: "Sufficient is Allah for me! In Him trust those who put their trust." - 39:38
So it's not really about testifying that there is one God, many of the polytheists already knew/know this. For the polytheists it's about why they have taken other things beside God for worship. The same applied to some of the Children of Israel who took to idol worship even though they knew it was forbidden.
Hope the above makes sense.