Lost vs. Lateral

Question
I hit my tee shot into a bunker on the left side of the fairway which came to rest on the left side of the bunker. When I tried to advance the ball with my feet considerably elevated I topped the ball which ran through the bunker and over a grassy knoll on the far end of the trap. When walking up to the knoll I found that the fairway sloped dramatically to the left towards the cart path and lateral hazard beyond. I could not find my ball and being there was short grass had a good idea of what had happened.

Although I didn't see my ball roll into the lateral or the approximate location of entry I treated it as a lateral hazard and placed my drop back near the knoll and at the closest point to where the ball could have entered the lateral, took a 1 stroke penalty and advanced the ball. My playing partner considers this as a lost ball and that I should have taken the ball back to the bunker and play from there with a 2-stroke penalty.

Answer
John,

Here is the answer for you. "virtually certain" are the two important words here. The player is the one that makes the decision.

26-1. Relief for Ball in Water Hazard
It is a question of fact whether a ball that has not been found after having been struck toward a water hazard is in the hazard. In order to apply this Rule, it must be known or virtually certain that the ball is in the hazard. In the absence of such knowledge or certainty, the player must proceed under Rule 27-1.

Thank you for the question.

Michael