When it is in the heart to obey God, when efforts are put forth to this end, Jesus accepts this disposition and effort as man's best service, and He makes up for the deficiency with His own divine merit. But He will not accept those who claim to have faith in Him and yet are disloyal to His Father's commandment. {FW 50.1}

Our obedience is imperfect, but in heaven it is considered perfect because of Christ's righteousness, since He makes up for the deficiency with His own divine merit. Our only hope is in the merit of Christ.

Great quote! Now, what does it mean? NOTICE - "efforts are put forth". Is that not work? Does that work save us? NO. But we MUST put forth effort. Notice also, the last sentence, first paragraph is tell us He will not accept those that do not put forth effort. The teaching of the Nicolaitans was by "believing" we are released from the necessity of doing.

Now this question - what does it mean that he will "make up for the deficiency with His own divine merit"? Is this an accounting problem? Oops, not enough goodness in the account, I'll do a merit transfer. If one think of sin a just breaking the rules and there is a tally of those sins which much be legally expunged, the maybe that is how it works. Not sure how that makes one safe to be around. Do you want to live next to a lying, murdering rapist whose account has been erased, or one that has been transformed, has a renewed mine, one born of God? (1 John 3:9; 1 John 5:18) I'd rather live next a transformed lying murdering rapist, than next to Judas after betraying Jesus, ran to Caiaphas and pleaded with him to release Jesus saying "He is innocent; spare Him, O Caiaphas!". He continued, "I have sinned," cried Judas, "in that I have betrayed the innocent blood." He had confessed his sin, and pleaded for Jesus's release. He cast himself at Jesus's feet, acknowledged Him as the Son of God and entreating Him to deliver Himself. But Judas was not converted. Jesus did not condemn him. Judas went out and killed himself.

The divine merits Jesus imparts are not on an accounting ledger. They are those attributes which He developed, He learned, when He came and took on Man's fallen nature. Read the chapter, "It is Finished" in Desire of Ages One quote:
The law is fulfilled in the believer! The believer is transformed, the character becomes the divine character. This is not an accounting problem. It is a real problem. The law demands righteousness. No one will be saved unless they meet the demands of the law. Through Christ, the sinner can be brought back into conformity to the law. The law has no provisions to save. Therefore, the only way to be saved is to be brought back into conformity to the law. This is what is called, the plan of redemption.

Can't you see what she is saying? After Christ imbues men with the attributes of God, their efforts will still be imperfect, and yes, Christ makes up for the deficiency with His own divine merit, His perfect righteousness.

The religious services, the prayers, the praise, the penitent confession of sin, ascend from true believers as incense to the heavenly sanctuary: but passing through the corrupt channels of humanity, they are so defiled that unless purified by blood, they can never be of value with God. . . . All incense from earthly tabernacles must be moist with the cleansing drops of the blood of Christ. He holds before the Father the censer of His own merits, in which there is no taint of earthly corruption. He gathers into this censer the prayers, the praise, and the confessions of His people, and with these He puts His own spotless righteousness. Then, perfumed with the merits of Christ's propitiation, the incense comes up before God wholly and entirely acceptable. . . . {AG 154.4}
O, that all may see that everything in obedience, in penitence, in praise and thanksgiving must be placed upon the glowing fire of the righteousness of Christ. {AG 154.5}

This must happen, but only this wouldn't solve the problem!

Christ died because there was no other hope for the transgressor. He might try to keep God's law in the future; but the debt which he had incurred in the past remained, and the law must condemn him to death. Christ came to pay that debt for the sinner which it was impossible for him to pay for himself. {FW 30.1}

If the problem was just bringing man back to the conformity to the law, there was no need whatsoever for Christ to have died. He needed just to have lived.

If sin is a legal problem, how does Christ death atone for all the pain and suffering anyone has occurred. Will it remove the damage? Nope. The modern equivalent might be a lawsuit for wrongful death. A judgment may be in favor of the survivor, and a monetary award made. Has the sin been atoned? Nope. How can it?

The question that needs to be asked is "Why did Jesus need to die?". Was God able to restore us back into conformity to the law before the death of Christ? You say yes. I say NO! Why? Hebrews 2:17-18 Why in all things it behooved him to be made like to his brothers, that he might be a merciful and faithful high priest in things pertaining to God, to make reconciliation for the sins of the people. 18 For in that he himself has suffered being tempted, he is able to succor them that are tempted. Hebrews 4:15 "For we have not an high priest which cannot be touched with the feeling of our infirmities; but was in all points tempted like as we are, yet without sin." He who seeks to transform humanity must himself understand humanity. Thus He had to live and die as a man to understand how to undo the damage. He saw men as they might be, transfigured by His grace. What is Jesus's grace? I've repeated this before as found in Isaiah 53:11 and Titus 3:5-7. Jesus's grace is His knowledge to undo the damage done, it is by His knowledge that we are justified. Read all of Isaiah 53. He carried our sickness, sin. By himself, He purged our sin - from Himself, Hebrews 1:3. This knowledged was gained by His life and death. His death was necessary. And it is the life AFTER His resurrection by which we are saved. Sin is not an accounting problem of deeds done. Isaiah 53:11 says it is by His knowledge that we are justified. Is this legal? Sin is a real problem, a scientific problem rather than a legal problem, a corruption of what God has made. Undoing the damage I will state, is a far more difficult problem than the original creation. It required an infinity sacrifice to solve. It will be our study for eternity to understand the complexities of the plan of salvation. If sin is a legal problem, how hard is it to understand?

The atonement of Christ is not a mere skillful way to have our sins pardoned [it is not legal]; it is a divine remedy for the cure [it is healing] of transgression and the restoration of spiritual health. It is the Heaven-ordained means by which the righteousness of Christ may be not only upon us but in our hearts and characters (Letter 406, 1906). {6BC 1074.2}

The essence of the Gospel is restoration.

Where are these efforts being made? On earth or in heaven? We will not be admitted to heaven in our sinful state. It has to be remedied first. You are claiming that God cannot restore men back conformity. Do you really believe that God cannot do that?

By doing something that goes against life as it should be lived, you forfeit the right to life - the forfeited life makes atonement for the sin committed. Read Numbers 25, and how Eleazar made an atonement for the children of Israel.

“Without shedding of blood,” says the apostle, there is no remission of sin. “The life of the flesh is in the blood.” [Leviticus 17:11.] The broken law of God demanded the life of the transgressor. The blood, representing the forfeited life of the sinner, whose guilt the victim bore, was carried by the priest into the holy place and sprinkled before the veil, behind which was the ark containing the law that the sinner had transgressed. {GC 418.1}

What I believe is that your best is imperfect because you are a sinner and always will be this side of eternity. Even if you don't commit acts of sin, sin is in you, and sin, whether carried out into practice or not, "is the transgression of the law."

How is sin in you? Please explain further.

What she is saying is that mere pardon won't solve the problem - but the problem also can't be solved without pardon. So yes, the solution is also legal.